No change in tax take from cigarettes despite price rises

A 50 cent increase on the price of a pack of cigarettes has now been implemented six years in a row. File photo

Tax income from cigarettes and tobacco had remained steady no matter how often the price increased in the Budget, according to Department of Finance records.

A submission prepared for Finance Minister Paschal Donohoe also suggested a decline in airline travel had led to an increased tax haul from tobacco sales throughout this year.

It said that a 50 cent increase on the price of a pack of cigarettes had now been implemented six years in a row, with Minister Donohoe opting for yet another price hike in October’s Budget. The submission said tobacco excise receipts had been €1.2 billion last year and were forecast to rise to €1.262 billion for the entirety of 2021.

“This suggests a continuation of a longer-term trend of tobacco excise receipts remaining stable at around €1.1 billion per annum, with the effect of rate increases balanced out by the effect of volume reductions,” it said.

The submission also speculated that revenue from cigarette taxes had risen because of the pandemic due to lower levels of airline travel. Normally, up to 10% of cigarettes consumed each year are brought in from EU member states that have much lower taxes and prices.

Tax on alcohol

A separate submission on alcohol prices detailed how Ireland had some of the highest excise rates in the EU but that they had remained unchanged since 2014. It explained how the pandemic had led to significant shifts in patterns of booze consumption with the drinks industry calling for a 7.5% cut in excise rates.

The submission said: “Due to the continuing Covid-19-related public health restrictions, the overall volume of alcohol sold has decreased with a substantial change in the relative volumes of drink types.

“With both beer and cider having a high percentage of total sales in the on-trade [pub trade], these have been the worst affected with wine, sold more in the off-trade, the least affected.” 

Officials also warned the effect of Britain’s exit from the EU had not yet been fully felt because of the pandemic as new duty-free services had not developed as expected.

It said: “[This] raises concerns around the wider availability of low-priced tobacco and alcohol products in the State and the negative impact on the Government’s public health policy.” The submission also said the introduction of so-called “minimum unit pricing” south of the border for booze could be problematic if not introduced simultaneously in Northern Ireland.

The measure is due to come into force on New Year’s Day and could create a “significant price differential” that would lead to cross-border shopping for alcohol.

Minister Donohoe decided to leave excise duty untouched however, with a note from him saying: “No change in this area – no change in excise rates.” 

Carbon tax

A submission on carbon taxes explained how the Exchequer’s take from energy taxes had dropped by €300 million last year “due to the impact of public health restrictions”.

Officials detailed how further increases were likely to “exacerbate cross border issues” which incentivised the illegal sale of coal from the North to the South.

A note from Minister Donohoe said: “Move ahead with carbon tax increases. No change in other taxes/levies. No change to diesel rebate scheme.” Asked to comment on the records, the Department of Finance said they were self-explanatory and reflected the position and considerations at the time.