Since 2000, the Irish Government has significantly increased the scope of tobacco regulation making the tobacco industry one of the most regulated in Ireland. In addition to the introduction by successive Governments of numerous regulatory initiatives over the last number of years, a policy of high excise as a means to control consumption has also been followed.
The stated aim of the health regulators over the years has been to reduce the number of smokers in Ireland. For the last 10 years, the number of smokers has remained the same, except for a 2% increase following the ban on 10’s, at 29% according to Eurobarometer.
The unintended consequence achieved by the Government has been a massive move by legitimate, tax paying, consumers into the illegitimate, and Non Irish Duty Paid (NIDP) tobacco market.
As Figure 1 shows, the increase in levels of NIDP tobacco not only mirrors the sustained increases in excise but also parallels the cumulative burden of regulation affecting tobacco retailers and smokers – culminating in 2012 with the introduction of graphic health warnings on all tobacco product packaging.
Figure 1: Timeline of Irish Tobacco Regulation Against Levels of Illicit Trade
This illicit trade deprives the State of revenue, threatens retail jobs, fosters wider criminality and undermines public health policy. The effect of the sharp rise in untaxed cigarettes and the parallel fall in consumption of taxed products is that Government projections of revenue from tobacco excise have not been achieved.
Taxes on cigarettes and tobacco are worth almost €1.5 billion to the Irish Exchequer each year. Despite annual increases in the rate of excise and the number of smokers in Ireland remaining steady, excise returns are falling.
The Revenue Commissioners Annual Report for 2012 showed that income from tobacco excise came in a massive €82.6 million below target.
Speaking in December 2011, Minister for Finance Michael Noonan said that the illegal trade in cigarettes means the Exchequer loses out on around €250 million every year – roughly half the amount cut from the social welfare budget in the Government’s austerity measures. Research conducted by Ipsos MRBI on behalf of the Revenue Commissioners found that tobacco smuggling caused losses of €258m, while recent estimates from Retail Ireland and ITMAC place this figure even higher, suggesting that nearly €663m is being lost to Non Irish Duty Paid product.