21 August 2017
Retailers can no longer compete with the illicit trade of smuggled products and therefore are calling on the Government to put in place the following to protect small and medium sized Irish businesses:
- A moratorium on further excise increases until such rises can be proven not to lead to a surge in smuggling as a result of price differentials.
- In the context of Brexit, provide increased resources for Revenue to enhance their efforts to tackle alcohol, tobacco and solid fuel smuggling.
- Provide support for the Sale of Illicit Goods Bill 2017 to protect legitimate businesses from the illicit trade of alcohol, tobacco and solid fuel.
- Implement the registration of all solid fuel traders provided for in the Environment (Miscellaneous) Provisions Act 2015 to ensure that retailers are tax and VAT compliant.
Retailers Against Smuggling (RAS) represent over 3,000 small and medium sized retailers across the country. RAS aim to generate widespread awareness amongst the public, media and decisionmakers of the impact that smuggled alcohol, tobacco products and solid fuel has on local legitimate retailers in Ireland and the impact that tax policy has on them.
From 2010-15, illicit trade in Ireland amounted to a €1.2 billion loss to the Exchequer which is more than the budget for the social housing strategy in Ireland in 2017. As representatives of registered and legitimate tobacco retailers whose legal cigarette trade can account for 30-40% of our business, the ever-increasing excise applied to cigarettes is undermining our ability to do business and is making life considerably easier for criminals engaged in cigarette smuggling. The sale and consumption of illicit products not only financially impacts retailers and local communities, it has many non-financial impacts including growth of organised crime and undermining our legal and regulatory system. While much has been done in terms of seizures and investigations the reality is that because of increases in excise on tobacco products over the past 6 consecutive years, a legitimate retail selling tobacco at c. €11.50 per pack simply cannot compete with the €5 smuggled pack. Budget 2018 provides the Government with an opportunity to protect small and medium businesses by resisting an increase in excise for the 7th year in a row.
A growing area of concern for retailers is the illicit trade in Roll Your Own tobacco (RYO) following the introduction of a 30g minimum RYO pack size on 20 May 2017. This new minimum means that the vast majority of RYO consumers face large ‘out of pocket’ spending increases, some as high as 300%, therefore pushing those users to purchase off the illicit market. Retailers concerns were confirmed in early June when Revenue seized over 2 tonnes of loose tobacco from a Polish-registers truck at Rosslare Europort.
According the Revenue’s Illegal Tobacco Products Research Survey 2016, 10% of cigarette packs in Ireland are classified as illegal and a further 8% are Non-Irish Duty Paid. This means that in 2016, 412 million illegal cigarettes were consumed in Ireland, representing a loss to the Exchequer of approximately 170 million euro.
In 2015, Revenue made 938 seizures of illicit alcohol including beer, spirits and wine. The 2016 figures show an almost 100% increase in alcohol product seizures, to 1,875. This increase in seizures highlights the growing market for cheap illicit alcohol products in Ireland and this is of serious concern to small and medium retailers.
Illicit trade in solid fuel is fast-increasing, Grant Thornton estimate that 30% of the market is illicit, with the market being flooded with solid fuel from Northern Ireland on which neither VAT nor carbon tax has been paid. The cross-border smuggling of solid fuel is often perceived as a victimless crime but according to members Hardware Association Ireland, 89% say they suffer with loss of trade due to the illicit solid fuel trade.
On 31 July, the interdepartmental Tax Strategy Group (TSG) published their paper on excise which noted that Ireland now has the highest excise rates in Europe and that a further increase will not necessarily lead to an additional yield of revenue. The TSG paper stated that the Revenue Commissioner “remain vigilant that reductions [of seizures] may be due to changes in smuggling activity” which is an incredibly important point in light of Brexit and potential changes around the border.
Please find a more detailed look at each of our recommendations below.
- No further increases in excise until such increases can be proved not to encourage smuggling as a result of price differentials.
Ireland is now second in Europe’s Nanny State Index. This breaks down to 189% of the European average for tobacco products and 175% for alcohol with the average cost of a pack of cigarettes in Ireland currently at €11.50 compared to illegal cigarettes which can be bought across the country for €3.50-5.00. The Illicit Trade 2015-2016 Implications for the Irish economy report published by Grant Thornton in 2015 highlighted that the key driver for the illicit trade of cigarettes and tobacco products is the increasing level of excise tax. In relation to Tobacco Products Tax (TPT), the first three of Minister Noonan’s budgets led to a cumulative budget shortfall of almost quarter of a billion euro. For example, in the 2014 budget, Minister Noonan predicted a €15 million income from TPT following another 10c hike yet there was actually a €95 million shortfall. It is fair to argue that we have reached tipping point on the economic yield from excise increases and those who are directly being negatively impacted by the hikes are the legitimate retailers. The Department of Health’s Healthy Ireland Survey 2015 found that smoking levels are higher amongst those living in the most deprived areas and in lower social classes. Therefore, an increase in excise tax is a tax on the poorer in our society and can lead to a deviation to the illicit market.
- In the context of Brexit, increased resources for Revenue and An Garda Síochána to enhance their efforts to tackle tobacco, solid fuel and alcohol smuggling.
Retailers are genuinely concerned about the impact Brexit, a fluctuating Sterling and the possibility of trade tariffs will have on smuggling along the border. Extra resources and protections are needed for small legitimate retailers who operate in the border counties to ensure there is no increase in smuggled goods entering Ireland. While Revenue staff undergo extremely dangerous operations, there is still much illicit product that is smuggled across the border and through our airports and ports. Revenue should be provided with the necessary equipment and manpower to prevent illicit products making their way to consumers and damaging legitimate businesses.
- Government support for the Sale of Illicit Goods Bill 2017 which will make it an on-the-spot offence to purchase illicit alcohol, tobacco and solid fuel.
Those who purchase smuggled goods knowingly do so because there is no deterrent or risk and a fine, or threat of a fine, will make those who buy illegal products think twice. On the 4 April 2017, the Sale of Illicit Goods Bill 2017 was introduced to the Dáil by Deputies Declan Breathnach, John Lahart and Robert Troy. The Bill will make it an offence to purchase illicit alcohol, tobacco and solid fuel; an offence to purchase illicit goods from an unregistered or unlicensed retailer and will provide for on-the-spot fines in respect of such offences. Tobacco and alcohol retailers in Ireland are required to register and pay a fee to legally sell these products. This legitimate business is undermined by the illicit trade and the State needs to do more to protect small and medium-sized.
- Implement the registration of all solid fuel traders provided for in the Environment (Miscellaneous) Provisions Act 2015 to protect legitimate and compliant retailers.
A truck traveling from Northern Ireland to the Republic of Ireland with twenty tonnes of solid fuel would save the seller almost €1,200 due to the lack of Carbon Tax in NI and a lower VAT rate of 5%. The Environment (Miscellaneous) Provisions Act 2015 requires a valid Tax Clearance Certificate to register and the implementation and enforcement of this legislation would be a major step to help eliminate illicit solid fuel sales and protect Irish businesses.
 Sale of Illicit Goods Bill 2017 https://www.oireachtas.ie/viewdoc.asp?DocID=34957&&CatID=59