General Excise Duties (Tobacco, Alcohol, Betting and Others)

Transcription

1 General Excise Duties (Tobacco, Alcohol, Betting and Others) Introduction 1. This paper examines the area of general excise duties which apply in the State. It outlines the rates that have applied and the revenue yielded from excise duties in recent years. It also examines trends in consumption of excisable products. It considers both new and ongoing social, economic and political issues which may affect excise yields or consumption of the products on which excise duties apply. The paper also puts forward revenue raising options from excise duties. Finally the paper considers new potential excise duties which may be considered to fulfil a social or economic role. The paper is divided in to four sections: A. Tobacco Products Tax B. Alcohol Products Tax C. Betting Duty D. Sugar-Sweetened Drinks Tax Policy Approach to Excise Duties 2. Excise duties are taxes levied on specific goods and products. Following the widespread adoption of VAT in the 1970s and 1980s, many excise duties were abolished in Western Europe, with tobacco, alcohol and energy products remaining as the subjects of excise taxation. The move to complete the Single Market in the early 1990s led to the adoption of a number of Directives, some of which have since been updated, to govern the structure and rates of excise duty on certain excisable products throughout what is now the European Union. As such, Ireland s excise duties in relation to tobacco, alcohol and energy products most comply with EU Directives in those areas, as well as with the Directive 2008/118/EC, which covers general arrangements for excise duty. 3. While the primary aim of excise duties is to raise revenue for the Exchequer, there are also ancillary objectives, including the deterrence of the consumption of harmful products, and the reflection of the external cost placed on society resulting from the consumption of such products. For example, tobacco consumption places significant current and future costs on the health services, while the abusive consumption of alcohol is linked to public order offences and negative health outcomes. Recent Developments Tobacco 4. Successive excise increases have been imposed on tobacco products over the past number of years. Since has been added to a packet of 20 cigarettes in the most popular price category (MPPC) in excise and VAT. Smoking prevalence in Ireland has reduced by 7 percentage points since Fewer people are smoking than ten years ago and those that smoke are smoking less. The rates of non-irish duty paid

2 Alcohol Betting and illicit cigarettes consumed in the country has reduced from 20% in 2009 to 16% in Ireland currently imposes the second highest level of excise duty in nominal terms in the EU-28, only the UK has higher excises on tobacco. 5. Excise duty on alcohol products was increased in Budgets 2013 and Excise duty on alcohol products has remained largely unchanged between 1994 and However, in Budget 2010, excise duty on all alcohol products was reduced by 20% (including VAT). Alcohol consumption per capita has reduced significantly in recent years from 14.0 litres in 2000 to 10.6 litres in There has also been a shift in the type of alcohol products consumed per capita. There has been a large increase (+79%) in the litres of wine cleared for consumption since There has also been a significant decrease in the litres of beer cleared for consumption (-24%) over the same period. 6. Betting duty on bets placed with a traditional bookmaker has remained at 1% since The new Betting (Amendment) Bill 2013, currently going through the Houses of the Oireachtas, seeks to bring all remote bookmakers and betting intermediaries, otherwise known as betting exchanges, into the licensing and taxation regime regardless of their location. It is estimated that the taxation of this new cohort will yield 20 million in a full year. Sugar-Sweetened Drinks 7. Recently there have been calls from a number of quarters, particularly the Irish Heart Foundation (IHF), to introduce a tax on sugar-sweetened drinks to kerb the obesity problem in Ireland, particularly among the young. France and Hungary have recently introduced a type of tax on sugar drink products. There may be significant difficulties introducing a tax of this type as an excise duty in Ireland, and may give rise to significant administrative costs and overheads for both business and Revenue. Receipts from Excise Duties 8. Receipts from excise duties on all categories of tobacco totalled 1,064m in 2013, down from 1,072m in Receipts from excise duties on all alcohol products totalled 1,002m in 2013 up from 846m in Betting receipts in 2013 totalled 25m down from 27m in The table below indicates the projected receipts for 2014 against the actual receipts for Receipts Projected Receipts 2014* +/ against 2013 Tobacco 1,063.9m 954.3m m Alcohol 1,002.0m 1,129.7m 127.7m Betting 25.4m 25.4m 0m Total 2,091.3m 2,117.0m 25.7m *Projected receipts based on Mid Term forecasts.

3 9. Receipts from excise duty on tobacco are up 0.3m against profile in 2014 to end July, while receipts from excise duty on alcohol are up 12.3m against profile over the same period. Betting duty receipts are slightly up on profile. The table below indicates the differences in receipts from tobacco, alcohol and betting over the first seven months of 2013 and 2014, and the performance of excise receipts against profile Receipts to 2014 Receipts +/- over same period +/- against profile end July 2013 end July 2014 in Tobacco 487.3m 414.2m m 0.3m Alcohol 498.1m 593.0m 94.9m 12.3m Betting 18.0m 18.7m 0.7m 0.5m Total 1,003.4m 1,025.9m 22.5m 13.1m

4 A: TOBACCO PRODUCTS TAX 10. The current rate of excise duty on cigarettes is composed of a specific rate of per 1,000, combined with an ad valorem rate of 8.72%, or per 1,000, whichever is greater. In the case of a 20 pack of cigarettes in the most popular price category (MPPC) of 9.60, the specific excise duty component is 4.84, the ad valorem excise duty component is 0.84, and the VAT component is This amounts to 7.47 tax per 20-pack, or 77.8% of the price. The rate of excise duty on Roll-Your-Own (RYO) tobacco is currently per kg, or 6.31 per 25g pack of RYO. Recent Trends in Tobacco Taxation and Consumption 11. Successive excise increases have been imposed on tobacco products over the past number of years. It should be noted that the cigarette manufacturers have responded to increases in excise duty and VAT to maintain their margins on a 20 pack of cigarettes in the MPPC as the table below shows. The price of the MPPC indicates the price following both tax and trade increases following each budget. Excise Duty and VAT Increase Trade Increase Price of MPPC ( ) Total Tax Content ( ) Tax content as % c 16c c 13c c 10c c 20c c 10c c 10c c 12.3c (Supp) 25c 10c c 13.5c c 10c c 10.7c c 10c c 10c Tobacco Products Tax receipts have remained broadly stable over the last ten years, as excise increases have maintained revenues while consumption of cigarettes has declined, and the prevalence of smoking amongst the population has declined. Since 2008 there has been an increase in the consumption of RYO tobacco, driven by reductions in disposable income between 2009 and 2013, and to a lesser extent differentials in price between RYO and cigarettes. The HSE National Tobacco Control Office s survey indicates that the percentage of smokers consuming 21 or more a day fell from 11.4% as of June 2003 to 4.6% as of June The table below includes the smoking prevalence rate, as measured by the HSE National Tobacco Control Office, as of June of each calendar year, receipts from the Tobacco Products Tax, and consumption of tobacco products based on clearances of tobacco products. The table demonstrates fewer people are smokers in 2013 than 2003 and those that are smoking are smoking less than in 2003.

5 Smoking Prevalence (as % of population) Cigarettes ('000) Annual per capita (15+) consumption of cigarettes RYO Smoking tobacco (kg) Annual per capita (15+) consumption of Smoking Tobacco (g) Cigarettes Receipts ( m) Other Tobacco Receipts ( m) Total Net Receipts ( m) ,295,263 2, , , , ,330,593 1, , , , ,514,228 1,681 95, , , ,604,884 1, , , , ,401,702 1, , , , ,940,567 1, , , , ,607,146 1, , , , ,127,989 1, , , , ,153,921 1, , , , ,790,633 1, , , ,230, , , Cigarettes represent approximately 90% of tobacco consumption by value. Excise on RYO has traditionally been applied on a pro-rata basis but in Budget 2013 an additional 50c in excise (VAT inclusive) was applied to a 25g pack of RYO in addition to the prorata 10c, bringing the overall tax increase (VAT inclusive) on a 25g of RYO to 60c. 14. Total clearances of cigarettes up to end July 2014 are 3.4% down on clearances in the same period in 2013, while total clearances of RYO are 14.8% down. Receipts from the Tobacco Products Tax to end July 2014 are 414.2m, 1.4% ahead of forecasts. Non-Irish Duty Paid and Illicit Cigarettes 15. The data outlined at paragraph 3 relates to cigarettes and other tobacco upon which Irish duty has been paid. Results from the latest Ipsos MRBI survey conducted on behalf of the Revenue Commissioners and the HSE National Tobacco Control Office indicate that 11% of cigarette consumption in Ireland in 2013 was illicit, while an additional 5% of cigarette consumption was legal product purchased abroad. This represents a loss to the Exchequer in 2013 of some 212 million in excise duty and VAT, assuming that the illicit cigarettes consumed displaced the equivalent full tax paid quantity of cigarettes. The survey has been conducted since 2009, and the results below indicate a steady decrease in the illicit trade: Illicit non duty-paid Legal non-duty paid Total % 5% 20% % 9% 23% % 7% 21% % 6% 19% % 5% 16%

6 16. Ireland currently imposes the second highest level of excise duty in nominal terms based on the weighted average prices of cigarettes in the EU-28 (see Annex 1). However there is currently no incentive for cross-border shopping, as a combination of the tax increases, price increases, and currency movements has increased the price of cigarettes in Northern Ireland (NI) and Britain. The most recent cross-border survey carried out by the Revenue Commissioners indicates that a 20-pack of cigarettes in NI is 1.54 more expensive than an equivalent product in the State, while a 25g packet of RYO tobacco is 1.13 more expensive in NI, despite the tax content on a 25g packet RYO being 0.63 higher in the State. The table below indicates the differential in price and duty in a 20 pack of cigarettes as measured by the Revenue Commissioners in the first cross-border survey carried out following a UK budget: Price in this State ( ) Price in N. Irl ( ) Price Difference ( ) Total Tax State ( ) Total Tax NI ( ) Tax Difference ( ) / exchange rate Measures have been taken to restrict the number of non-irish duty paid cigarettes brought into the State. The quantity of cigarettes a person may bring into the State duty free from outside the EU for personal use, or from territories where EU rules on VAT and excise duties do not apply, is limited to 200 cigarettes. From 1 January 2014, Ireland has utilised Article 46 of the EU Excise Directive (2008/118/EU), which has allowed Member States impose a quantitative restriction of 300 on the number of cigarettes that may be brought in from those Member States that have not yet reached the EU minimum tobacco product tax levels. 18. In terms of the importation of illicit tobacco products the Revenue Commissioners have seized 42.5 million cigarettes with a value of 20.2m as of end-july. This figure includes a major seizure at Drogheda, amounting to 32.3 million cigarettes, the largest in Europe to date this year. The number of cigarettes seized since 2009 and the estimated value of those seizures is listed below: Quantity Value ( m) m m m m m The high level of seizures over recent years reflects ongoing enforcement action by the Revenue Commissioners aimed at all key points in the supply chain. It is also a clear indication, however, of the significant scale of both small-scale and bulk smuggling

7 activity. Legislative action has been taken over recent years to further strengthen Revenue s powers to respond effectively to the problem of the illegal tobacco trade: The Finance Act 2012 clarified the legal basis for Revenue officers to open and examine the contents of postal and courier packets that are reasonably believed to contain untaxed excise products. The Finance Act 2013 introduced new offence and forfeiture measures relating to the illicit production of tobacco and also strengthened the offence provisions relating to the sale or delivery of unstamped tobacco products. The Finance (No. 2) Act 2013 provided that a person suspected of an offence of dealing in, or with, unstamped tobacco products must provide information to a Revenue Officer or a Garda and may be required to present any tobacco product concerned for examination, and makes provision for search by a Revenue Officer or Garda of any bag or other receptacle that he or she reasonably believes to contain tobacco products that are concerned in the offence. Public Health Policy: Tobacco Control Policies and Standardised Packaging 20. Smoking is the leading cause of preventable death in Ireland, accounting for at nearly 19% (or 5,200) of deaths annually. It is estimated that one out of every two long-term smokers will die of a disease related to their tobacco use. In March 2013 the Government published Healthy Ireland, a Framework document outlining public health objectives out to The Framework outlined a preliminary objective of reducing smoking prevalence and smoking initiation by 1 percentage point per annum. In October 2013 the Department of Health published Tobacco Free Ireland, a Report of the Tobacco Policy Review Group, confirming a target of less than 5% smoking prevalence by 2025, which implies a 77% reduction in the numbers smoking between 2013 and In Tobacco Free Ireland, the Department of Health made a number of recommendations in relation to fiscal policy, including raising excise duty on tobacco products over a five year period and reducing the price differential between RYO and cigarettes. 22. Increasing excise duty on tobacco products is only one of a number of measures that contributes to the overall strategy to reducing tobacco consumption and smoking prevalence. As part of tobacco control policy a range of initiatives have been introduced over the past number of years, including a prohibition on tobacco advertising, a prohibition on sponsorship, the smoking ban in January 2004, a prohibition on the sale of cigarettes in packs of less than 20 in May 2007 and in July 2009 a ban on the advertising and display of tobacco products in retail outlets. Standardised Packaging 23. Regulations to introduce combined text and photo warnings on tobacco products came into force on 1 February In June 2014 the Government approved the Public Health (Standardised Packaging of Tobacco) Bill 2014, which will remove all forms of branding including trademarks, logo, colours and graphics from packs, except for the brand and variant name which will be presented in a uniform typeface. It is expected that the measures will come into force in It is estimated that 80% of smokers start

8 when they are children, and standardised packaging legislation is designed to reduce smoking initiation rates. 24. Australia introduced standardised packaging in December 2012, while in April 2014 the British government announced it plans to legislate for the introduction of standardised packaging. The tobacco industry has been strongly opposed to the introduction of standardised packaging, and has threatened legal action against the State, based on the argument that standardised packaging amounts to an expropriation of their intellectual property. Indonesia, Cuba, the Dominican Republic, Honduras and Ukraine have all challenged Australia s standardised packaging through the World Trade Organisation s (WTO) dispute resolution mechanism. 25. The Revenue Commissioners are satisfied that the proposed standardised packaging of tobacco products will not damage their work to tackle the illicit tobacco trade. Revenue relies on the tax stamp to identify tax paid tobacco products, and the standardised packaging legislation will accommodate the stamp. The tax stamp contains a range of features designed to minimise the risk of counterfeiting. EU Context Directive 2011/64/EU 26. Directive 2011/64/EU has codified previous Directives regulating the structure of duties imposed on tobacco products. The Directive requires the tax imposed on cigarettes to be composed of both a specific and ad valorem component, and imposes a ceiling such that the specific component may be no more than 76.5% of the total tax take (i.e. excise and VAT) based on the Weighted Average Retail Selling Price (WAP). Ireland rebalanced its rates in Finance Act 2012, so that the specific component is currently 66% of the total tax based on the WAP. There have been calls from the Irish Heart Foundation and Irish Cancer Society to extend the specific element to a higher percentage of the total tax take, but while a higher specific element provides greater security of revenue in the event of price decreases, it would mean the Exchequer taking a lower yield from any trade increases. 27. The tobacco market in Ireland is characterised by a high market share (nearly 75%) for cigarettes which occupy the higher price points in the market. Given the Directive provides that manufacturers and importers are free to determine the maximum retail selling price of cigarettes placed on the market in a Member State, the tobacco industry can mitigate any attempt to reduce their share of the price of cigarettes. As the table under paragraph 2 displays, the tobacco industry have maintained the trade share of the price of a 20 pack of cigarettes in the MPPC. Reducing the ad valorem rate would also prevent the Exchequer taking a share of any trade increase. For example, the Budget 2014 tax increase of 10c raised the price of a pack of 20 cigarettes in the MPPC to A subsequent trade increase in June 2014 increased this to This 10 cent trade increase resulted in an additional tax take of 3 cent (1 cent TPT and 2 cent VAT). If the tax structure was based on a maximum specific component and a minimum ad valorem component, a similar increase in the

9 retail selling price would result in a VAT increase of 2 cents but virtually no additional excise duty. Minimum Excise Duty 28. Directive 2011/64/EU also contained a provision allowing for application of a minimum excise duty (MED) on cigarettes, provided the mixed structure of the tax (that is, the combination of specific and ad valorem elements) and the specific element parameters are respected. On 1 May 2012 a minimum amount of duty was introduced that has to be paid irrespective of the price at which cigarettes are sold. The current minimum amount is per thousand in respect of cigarettes sold by retail where the rate of tax would be less than that rate had the rate been calculated to the specific and ad valorem formula. The current MED represents the excise duty payable on a packet of 20 cigarettes priced at It may be prudent to increase the MED to per thousand, which represents the excise duty payable on a packet of 20 cigarettes priced at This will provide greater security of revenue if the tobacco industry introduces a brand of cigarettes at a lower price point than Relative Rates of Tobacco Duty on Different Tobacco Products 30. The consumption of RYO has nearly tripled since 2008, although it still represents a relatively small portion of the tobacco market. As noted, excise duty on a 25g pack of RYO was increased by 60c (VAT included) in Budget 2013, against a 10c increase in cigarettes in the same budget. 31. Given the differences in product characteristics and tax bases, comparisons of the tax levels applicable to cigarettes and RYO are difficult and inexact. However, if it is assumed that a kilogram of RYO tobacco yields 1,320 commercially-produced cigarettes, the tax applicable (excluding VAT) to a kilogram of tobacco (based on a price of 9.60 per pack of 20 cigarettes) can be estimated to be , while the tax levied on a kilogram of RYO tobacco is The comparison can provide only a general indication, but it is reasonable to conclude that the tax burden on RYO tobacco is substantially less than that on cigarettes. Possible Excise Increases 32. The Irish Heart Foundation (IHF) and Irish Cancer Society (ICS) have recommended, in their pre-budget submission, the introduction of a tobacco price escalator of CPI + 5%, and the increase in the level of specific excise duty levied on tobacco products to the maximum permissible level of 76.5% of the WAP. The IHF and ICS have also recommended that the tax applied to RYO be increased by CPI + 15% until such a time as the price of RYO is equalised with cigarettes. 33. The table below indicates the effects of increasing various levels of increased duty (on cigarettes, with pro rata increases on other tobacco products calculated on the basis of maintaining specific duty at 65% of total tax).

10 Increase (inc. VAT) From Budget Night ( m) Full Yield ( m) CPI Effect % Increase (inc. VAT) From Budget Night ( m) Full Yield ( m) CPI Effect % c c c c c c c c c *These estimates assume no exceptional change in consumer behaviour.

11 B: ALCOHOL PRODUCTS TAX 34. Ireland currently imposes the highest rate of excise duty on still and sparkling wine, and the third highest rates of excise duty on beer and spirits in the EU-28. Having remained largely unchanged between 1994 and 2010, Ireland: Reduced excise duty on all alcohol products by 20% (VAT inclusive) in Budget 2010; Increased excise on wine by 1 and beer and spirits by 10 cent (VAT inclusive) in Budget 2013; and Increased excise on wine by 0.50 and beer and spirits by 5 cent (VAT inclusive) in Budget Excise duty rates on representative products since 2009 are detailed below: Stout-Pint Lager (4.3 % ABV) - Pint Cider-Pint Winebottle Whiskey- Glass Whiskey- Bottle The table below illustrates the changes in the yield from the alcohol products tax over the last eleven years: Beer Cider Spirits Wine Total m m m m m , , , , , , * ,129.7 *Estimated. Consumption Patterns 36. The following table indicates the annual change in consumption of alcohol products in each category over the past ten years:

12 Beer (litres of product) Increase Cider (litres of product) Increase Spirits (litres of alcohol) Increase Wine (litres of product) Increase ,663, % 74,169, % 7,826, % 60,713, % ,777, % 75,636, % 8,049, % 69,393, % ,279, % 79,039, % 8,242, % 72,185, % ,836, % 81,975, % 8,652, % 77,400, % ,743, % 81,288, % 9,274, % 82,971, % ,273, % 72,273, % 8,587, % 80,297, % ,488, % 68,041, % 7,000, % 74,764, % ,351, % 66,361, % 7,818, % 87,408, % ,092, % 66,022, % 8,064, % 89,250, % ,304, % 63,763, % 8,261, % 87,768, % ,764, % 62,137, % 7,281, % 79,957, % 37. The most pronounced change in consumption patterns has been the consistent increase in consumption of wine. There has also been a reduction in consumption of beer. In 1984, 11.4m litres of wine was released for consumption in Ireland. This rose to a height of 89.5m litres in 2011, and subsequently fell to 80m litres in In comparison, beer consumption grew from a 412.7m litres in 1984 to a height of 571.2m litres in 2001, and subsequently subsided to 432.8m litres in As of end July 2014, clearances of beer were 3.7% higher, clearances of wine 9.2% higher, clearances of cider 8.3% higher, and clearances of spirits were down 2.4% compared to end July Relative Taxation of Products 39. The table below shows the comparative alcohol products tax content of the typical alcoholic beverage in each category as measured by the amount levied per degree of alcohol in the product: Per litre per 1% alcohol Product Type Still Beer Spirits Cider Spirit Wine Sparkling Sherry/Port Wine Alcopop alcopop Wine ABV 12.5% 4.2% 40% 4.5% 5% 4% 12% 18% Price per 1% ( ) Still Wine 750ml bottle 40. The table below indicates the comparative alcohol products tax levied per representative product: Stout Pint Spirits 700ml bottle Cider Pint Spirit Alcopops 275ml bottle Wine Alcopops 275ml bottle Sparkling Wine 750ml bottle Sherry/Port 750ml bottle

13 41. A relief, of 50% of the APT paid, applies to tax paid at the rate applicable to beer exceeding 2.8% alcohol by volume, which is produced in microbreweries defined as a brewery in which not more than 20,000 hectolitres of beer is brewed - located within the European Union. In 2013, 25 microbreweries availed of this relief at a cost of just over 970,000. Non-Irish Duty Paid Alcohol: Cross-border purchases and counterfeit alcohol Cross-Border Purchases 42. Relative prices between the State and Northern Ireland play a large role in cross-border purchases, which reduce the excise yield accruing to the State. In the case of beer and wine, a greater diversity of brands, and widespread short-term discounting by retailers, make it difficult to compare prices. There is also variation in the relative prices within each product category, with smaller measures and lower strength beers and ciders available in Northern Ireland, which may distort matters further. In addition, the Euro- Sterling exchange rate, the rates of alcohol duty in Britain and Northern Ireland, and the State s own excise rates play a role in cross-border shopping. 43. Annex 2 indicates the results of the most recent cross-border price survey carried out by the Revenue Commissioners. The table below indicates the differential in price and duty in selected comparable alcohol products as measured by the Revenue Commissioners in the first month the survey was carried out subsequent to a UK budget: Can Lager (500ml) Price in this State Price in N. Irl Price Difference Total Tax State Total Tax NI Tax Difference / exchange rate Price in this State Price in N. Irl Bottle of Wine (Chardonnay) Price Difference Total Tax State Total Tax NI Tax Difference / exchange rate

14 Smuggling/Counterfeit Products: 44. There have been 8 successful prosecutions for alcohol offences so far in 2014, relating to offences of keeping for sale or delivery spirits and wine on which APT had not been paid. This compares to 32 in 2010, 9 in 2011, 11 in 2012 and 7 in Of these prosecutions, 6 related to counterfeit spirits in 2010, 2 in 2011, 6 in 2012 and 2 in of the successful prosecutions this year involved counterfeit spirits. APT law in this area was strengthened in the 2005 Finance Act to help combat this type of fraud. The estimated retail value of alcohol seizures last year was 1,497,822 and for January to 30 June 2014 was 299,831. Retail Price Movements 45. As noted, APT remained largely unchanged between 1994 and 2009, decreased in 2010, and increased in 2013 and As APT is charged at a specific rate, the value of excise duty rates on all products fell between 2003 and 2009 due to constant trade increases. The reduction in APT in Budget 2010 led a sharp decrease in excise share of the price of most products. However, since Budget 2013 the excise share of all products has risen, with the excise share of products on the off-trade taking a higher share as a % of price than The tables below indicate the price of a nationally representative product in certain alcohol product categories on the on-trade and off-trade as measured by the CSO in the January of each calendar year mentioned, and the excise component of the price of those products: On-Trade Prices Pint - Stout (4.2% ABV) Excise Price Excise % of Price Pint - Lager (4.3% ABV) Excise Price Excise % of Price

15 Whiskey (35.5ml) (40% ABV) Excise Price Excise % of Price Pint Cider (4.5% ABV) Excise Price Excise % of Price Off-Trade Prices Can - Lager (4.3%) Excise Price Excise % of Price Bottle Wine (12.5% ABV) Excise Price Excise % of Price Can - Cider (4.5% ABV) Excise Price Excise % of Price Bottle - Whiskey (750ml) Excise Price Excise % of Price Public Health Policy 47. Ireland s consumption of pure alcohol by litre per capita (of those aged 15 and older) peaked in 2001, and has gradually fallen, while the composition of alcohol consumption has changed. While per capita consumption of alcohol is the lowest since 1990, increases in clearances of most alcohol products this year may lead to a slight upturn in alcohol consumption per capita.

16 Litres of alcohol per capita (aged 15 and older) Wine Beer Spirits Cider Total The Healthy Ireland Strategy, produced by Government in 2013, outlined an objective of reducing alcohol consumption to below 9.2 litres of alcohol per capita. It noted that alcohol is responsible for approximately 90 deaths every month in Ireland, which include many alcohol-related cancers and heart diseases. On foot of the Report on a National Substance Misuse Strategy, the Government announced in October 2013 that it would introduce a Public Health (Alcohol) Bill to tackle alcohol misuse. 49. A number of changes to APT have been made since 2003 with a view to inducing relative price changes to reduce alcohol consumption. In Budget 2003, excise duty on spirit based alcopops was increased to the rate applying to other spirits. A lower rate of excise duty has applied to beer exceeding 1.2% volume but not exceeding 2.8% volume since Budget This was designed to encourage the substitution towards lower ABV beers. Minimum Unit Pricing 50. The Public Health (Alcohol) Bill will provide for a minimum price per gram of alcohol in each alcohol product, which is designed to limit the sale of low-price alcohol, and for restrictions to advertising. 51. A health impact assessment, in conjunction with Northern Ireland, was commissioned in 2013, as part of the process of developing a legislative basis for minimum unit pricing. The health impact assessment has been studying the impact of different minimum prices on a range of areas such as health, crime and likely economic impact. The study is currently in the process of being finalised. The Department of Finance and the Department of Health are mindful that that any measure introduced in the State should be in collaboration with a similar measure in Northern Ireland to avoid crossborder implications.

17 52. The Scottish Parliament legislated for minimum pricing in 2012, with an initial minimum price of 50p per unit. However, the Alcohol (Minimum Pricing) (Scotland) Act 2012 has yet to be commenced, as the decision has been appealed by the Scotch Whisky Association. In April 2014, the Inner House of the Court of Session the supreme civil court in Scotland sought a preliminary ruling from the Court of Justice of the European Union on the compatibility of the Scottish measure with EU law. The outcome of this preliminary ruling will be critical to the introduction of minimum unit pricing. Turnover-based licencing 53. There has been a general shift towards the off trade in recent years. Changing patterns of alcohol consumption amongst the population and price discounting in supermarkets have contributed, amongst other factors, to this trend. This movement is excise-neutral but leads to a loss in VAT revenue due to lower off-licence prices. Industry data indicates that around 60% of Beer is consumed from the on trade. 54. Excise duty on publicans licences are levied by reference to annual turnover, while excise duty on off-licences is levied as a flat fee of 500 per alcohol products category to a total of 1,500 for Beer, Wine and Spirits. The majority of on-licences are levied at a rate of under 505 as detailed below: Turnover Band Duty Number Issued % Total Duty Under 190, , % 1,040, ,500 to 380, , % 926, ,000 to 634,999 1, % 864, ,000 to 952,499 1, % 791, ,500 to 1,269,999 2, % 562,952 1,270,000 or more 3, % 1,225,210 Total 7, % 5,411,107 *As of 29/08/ The drinks trade have argued for a turnover-based licencing regime to be applied to the off trade. It should be noted that the licence regime for pubs is based on the entire turnover of the business including snacks, meals, tobacco and entertainment. There may be difficulties associated with extending this to the off trade, given an application of the current turnover-based regime to the off-trade would apply the same turnover definition to a supermarket whose core business is groceries and household goods, as to a public house. Notwithstanding, this proposal is being examined by officials from the Department of Finance and Revenue Commissioners. Possible Excise Increases 56. Drinks Industry Group of Ireland (DIGI), the National Off-Licence Association (NOffla) and IBEC have requested a reversal of the APT increases imposed in Budget 2014 in their pre-budget submissions. NOffla also seek a re-introduction of the prohibition on below cost selling, which was removed following the abolition of the Groceries Order in 2006.

18 57. The following table shows the estimated effect of a range of VAT inclusive increases in terms of yield and impact on the CPI: Full From Budget Night Full From Budget Night Full From Budget Night Full From Budget Night 5c 10c 15c 20c Beer (per pint) 32.9m 7.4m 65.4m 14.7m 97.5m 21.9m 129.2m 29.0m CPI Effect 0.05% 0.10% 0.15% 0.21% Spirits (1/2 glass) 16.9m 5.7m 33.1m 11.2m 48.73m 16.5m 63.7m 21.7m CPI Effect 0.03% 0.05% 0.08% 0.10% Cider (per pint) 4.7m 0.6m 9.4m 1.2m 14.0m 1.7m 18.5m 2.3m CPI Effect 0.01% 0.02% 0.03% 0.04% Full From Budget Night Full From Budget Night Full From Budget Night Full From Budget Night 25c 50c 75c 100c Wine (Bottle) 13.3m 3.1m 25.6m 6.1m 37.0m 8.8m 47.5m 11.3 CPI Effect 0.04% 0.08% 0.11% 0.15%

19 C: BETTING DUTY 58. Currently Excise Duty is payable on bets entered into with a traditional bookmaker. The rate of duty was 10% up to 1 July It was then reduced to 5% and remained at this rate until In May 2002, the rate was reduced to 2% and further reduced to 1% from 1 July It currently remains at 1%. Bets on horse races or greyhounds coursing (including racing) contests made at the venue where the races or coursing take place, are exempt from this duty. Betting Duty Yield 59. The table below outlines the rates and yield from Betting Duty on traditional bookmakers from January 2000 to August Rate Yield % % (1 May) 5% / 2% % % % (1 July) 2% / 1% % % % % % % % (Jan to Aug) 1% 19.6 Extension of Betting Duty to Remote Bookmakers 60. Provision was made in the Finance Act 2011 to extend Betting Duty through the taxation of remote bookmakers and betting exchanges. These provisions are subject to a Ministerial Commencement Order. The Betting (Amendment) Bill 2013 now seeks to bring all remote bookmakers and betting intermediaries, otherwise known as betting exchanges, into the licensing and taxation regime regardless of their location. The new licensing system for remote operators will ensure that all businesses offering betting services from Ireland or to persons in Ireland are treated equally and regulated appropriately. 61. The Betting (Amendment) Bill 2013 completed Report Stage in the Dáil in July and is expected to complete Seanad and final stages in October On enactment, the new regulatory framework will permit the application of the 1% betting duty to licensed remote bookmakers and a 15% duty to the commission of licenced betting intermediaries.

20 Revenue Raising Options 62. The current relatively low rate of betting duty, at 1%, is a function of the changes that have taken place in the bookmaking industry over the past number of years and in particular the increase in activity in the remote or online sector. The explosion in the use of mobile phones, laptops and other electronic communication devices has greatly facilitated the migration of punters to the remote sector. Accordingly, until such time as the playing field for the traditional and remote bookmaker has been levelled, in so far as taxation is concerned, the rate had to be kept at low levels. 63. Once a regulatory and licencing regime for the remote sector is in place, all other options around the level and type of tax involved in the betting industry can be considered and reviewed. 64. In 2013, betting duty receipts from traditional bookmakers amounted to 25.4m. The most up to date figure for the 8-month period to the end August 2014 is approximately 19.6m. In addition, a working estimate of some 20m is anticipated from the application of Betting Duty to the remote sector. 65. While it is considered prudent to wait until the new regime has bedded in before considering changes to the rate, for illustrative purposes, revenue yield from modest increases in the rate are examined below. These figures presume no other changes to the structure or nature of the duty. a) Increase Betting Duty Rate to 2% - It is estimated that an increase in the rate of duty from 1% to 2% may yield an additional 35m per annum. b) Increase Betting Duty Rate to 3% - It is estimated that an increase in the rate of duty from 1% to 3% may yield an additional 70m approximately per annum. It should be borne in mind that increases in Betting Duty may result in some customers reducing their gambling expenditure and others diverting their expenditure to other gambling products or to unlicensed operators. Further Considerations Introducing a Tax on Winnings 66. It is considered that any tax on winnings, however small, would be very difficult to enforce in terms of internet and phone betting. Punters that bet via remote means are highly price sensitive and a tax on winnings would incentivise tax avoidance. Policing such a large group of people would be far more onerous than policing the betting firms. 67. All betting firms including betting exchanges share the above view and would prefer that the tax liability remains with the firms. The fact that the companies would prefer to bear the tax is a clear indication of how challenging it will be to enforce the tax.

21 D: TAX ON SUGAR SWEETENED DRINKS 68. The Irish Heart Foundation (IHF) has sought, as part of its pre-budget submission, the introduction of a tax on sugar sweetened drinks (SSD) which increases the price of such products by at least 20% to curb obesity amongst children and younger people. The IHF believe that such a tax could raise between 58m and 71m per annum. This projection is based on the household expenditures measured by the Household Budget Survey carried out by the CSO. 69. ICTU have called for a tax on saturated fat, added sugar and added salt. However, this approach may impose significant compliance cost on firms, particularly smaller firms. For example, a tax on saturated fat would place significant compliance costs on butchers and cheesemongers, who would have to price their products according to the content of saturated fat. Denmark withdrew their fat tax after a year in operation. An excise-type tax on a specifically defined product is simpler to administer and places less compliance burdens on businesses. 70. Ireland historically levied a form of excise duty on table waters, which included most categories now considered sugar sweetened drinks. The tax operated between 1916 and It also became increasingly important in the context of an increasing Exchequer shortfall in 1979/1980. The excise on table waters was levied at 0.10 a gallon from 1975 to 1979, but was sharply increased to 0.37 per gallon in Budget As the Minister for Finance of the day put it, this was equivalent to putting 2.2p on a 33cl can of Coca-Cola. This had the effect of raising the VAT-included price of a can of Coca- Cola by over 10% in The table waters tax was abolished in November 1992 as part of the reform of the tax code undertaken in anticipation of the full application of Single Market rules on 1 January France, Hungary and Finland all impose volumetric taxes on SSD. A volumetric tax is imposed as a specific amount per litre of product, as opposed to an ad valorem rate imposed on the final retail price of product. As such, it is easier to administer and impose. France introduced its tax on SSD at a rate of 7.16 per hectolitre of SSD in After amendments by the National Assembly, the tax applied to all SSD, whether diet or full sugar. The tax yielded 351m in 2013 and is expected to yield 373m in An analysis conducted by economists based in the Banque de France found that after 6 months, the tax was fully shifted to soda prices while the pass-through to prices of fruit drinks and flavoured waters was not complete. 72. The European Commission has not, thus far, indicated that it considers the French, Hungarian or Finnish SSD duties contrary to the European Treaties. Given SSD are not defined as a product under the general excise directive. This does not negate the need to design an excise on SSD in such a way as to comply with the Treaties, in particularly Article 110 of the TFEU and its associated case-law, which prohibits internal discriminatory taxation which has the effect of imposing taxes on products from other Member States in such a way as to provide indirect protection to similar domestic products. Given the tax will fall on all SSD, it would be difficult to argue that such a tax would be discriminating between similar products under Article 110 TFEU.

22 Public Health Rationale 73. The Department of Health has been concerned about the impact of obesity on the cost of health services for some time. The Report of the National Taskforce on Obesity (2005) recommended an examination of the impact of fiscal measures on obesity. In, 2009 a Special Action Group on Obesity was established by the Department of Health to work on an interdepartmental basis to review the 2009 report. In 2011 the Department of Health sent a memo to Government on the idea of an SSD tax. In 2012, the Department of Health commissioned a Health Impact Assessment (HIA) under the aegis of the Institute of Public Health. The resulting HIA formed the basis of the Department of Health s SSD tax proposal before Budget The HIA noted that there was a positive relationship between SSD consumption and measures of weight gain. The National Adult Nutrition Survey conducted between 2008 and 2010 indicates that 53% of all adults are overweight, and 24.5% are obese. The modelling in the HIA indicated that, assuming an own-price elasticity of 0.9 in relation to SSD, a 10% increase in the price of SSD would lead to a 1.25% reduction in obesity amongst adults. Applying an SSD in Ireland 75. Given the difficulties in applying an SSD at an ad valorem rate it would not be prudent to implement it in Ireland. A volumetric rate imposed at a specific amount per hectolitre would be easier to impose and administer, and have a greater price impact on multipacks, large volume SSD bottles and cheaper own-brand SSD products. As such, the SSD would function much like an excise, or indeed much as the old table waters tax operated. 76. France has applied its SSD tax on SSD to CN code 2009, encompassing fruit juices, and CN code 2202 which is categorised as waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured, and other non-alcoholic beverages under Council Regulation 2658/87/EEC. CN codes are used by customs and tax authorities to identify products, and manufactures, processors and importers must declare which CN code their products fall under. Excise duty is collected at the earliest point of distribution; in this case this suggests that one of manufacturers, processors or importers of SSD would be liable for a SSD tax. While there are a number of sophisticated suppliers within the market, such as large soft-drink producers, with the capacity to comply with an SSD tax, there are also a number of producers operating at a cottage industry level, who may find it difficult and costly to comply with an SSD. 77. It is generally accepted that, in order have a non-trivial effect on consumption and thereby impact on obesity levels and health related issues, the price shift induced by the level of taxation should be high, typically over 10%.

23 Issues of Concern 78. As with any consumption tax, it is difficult to predict with certainty the effect a tax on sugar-sweetened drinks will have on the behaviour of individuals. While a number of countries have recently introduced a tax which targets similar products, it is too early to affirm whether these countries are now experiencing a positive effect on obesity levels as a direct result of the tax. 79. The measure outlined above is not exactly that intended by the IHF. Notably, it does not differentiate between sugar-sweetened and artificially-sweetened drinks. It involves fruit juices. There is no incentive in the measure to move towards the sugar free soft drink offerings on the market. 80. It is also necessary to consider the impact of such a measure on small businesses such as retailers and domestic soft drinks producers. A reduction in the consumption of soft drinks would obviously have an impact in this area. It may also act as a disincentive for large soft drink multinationals to locate in the State. 81. The State should guard against introducing a tax that cannot be fully collected or that costs more to collect than it raises. While it is presumed that the Revenue Commissioners would be the collection agent if such a duty was introduced there are risks associated with introducing a tax on sugar-sweetened drinks as an excise when the products themselves are not currently treated like our other excisable products. For example, the system for controlling the movement of alcohol and tobacco products is subject to tight supervision, and both alcohol and tobacco products are kept in warehouses and factories specifically constructed for the storage of tobacco and alcohol products, facilitating the control and subsequent taxation of those products. No such system currently exists for the movement of soft drinks. 82. It is evident, therefore, that any consideration of a new tax on sugar-sweetened drinks would require adequate deliberation to assess the practical and administrative cost implications for both business and Revenue. Impact on Retail Prices of Various Rates 83. The tables below indicate the effects of a number of rates on the retail prices of existing products. Projected effects of rates of 7.16 per hectolitre, per hectolitre, per hectolitre on representative products are displayed below.