John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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79. To ask the Minister for Finance if he is concerned that the decision not to raise the minimum excise duty on cigarettes in Budget 2024 has allowed manufacturers to absorb the 75c general excise increase, rather than pass it on to consumers as intended; and if he will make a statement on the matter. [28610/24]

Jack Chambers (Dublin West, Fianna Fail)
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Under EU law, manufacturers or importers of cigarettes are free to determine the maximum retail selling price for each of their products. It is not possible, therefore, for a Member State to direct companies as to the price at which cigarettes are to be sold.

EU law imposes certain obligations on Members States on the way in which the rates and structure of tobacco products tax operate. Tax on cigarettes must be made up of specific and ad valorem components. The EU Tobacco Products Tax Directive allows for the application of a minimum excise duty (MED) on cigarettes, provided the mixed structure of the tax (i.e. the specific and ad valorem components) is respected.

Minimum Excise Duty was introduced in Ireland in 2012 to provide a base tax charge such that in the event of industry price reductions, excise returns would only fall to a set level and then be maintained regardless of how much further industry prices fell. MED consists of two components, a specific rate and an ad valorem rate, calculated in reference to a ‘trigger price’ which is set by the Minister for Finance.

The current trigger price for MED was set in Budget 2021 at €11.50. This means that if a tobacco company sells a packet of 20 cigarettes at a price below €11.50, they will still be required to pay excise duty as if the price charged had been €11.50. Following Budget 2024, the excise duty payable at the current trigger price for MED is €9.59. In this way, MED acts as a disincentive to tobacco companies to sell cigarettes at a loss in respect of excise duty.

At present, the lowest retail price for 20 cigarettes on the Irish market is approximately €14.30, meaning that, in current market conditions, Minimum Excise Duty is not triggered. However, the existence in legislation of the Minimum Excise Duty is important as it sets a floor beneath which excise duties cannot fall, regardless of cigarette industry price drops, should they occur.

Because Tobacco Products Tax is structured to contain both specific and ad valorem components, it means that the effective minimum rate of excise duty increases every time the specific rate of tobacco products tax is increased. This change in the effective rate of MED occurs regardless of whether the MED trigger price is changed.

Finally, in respect of the Deputy’s concerns that manufacturers may have absorbed the Budget 2024 increase of 75 cents instead of passing on the increase to consumers, I am advised by Revenue that recent price trends indicate this is not the case. Prior to Budget 2024, cigarettes in the Most Popular Price Category (MPPC) on the market were priced at €16.00. The current MPPC is €17.05, an increase of €1.05 compared to the figure prior to Budget 2024. This data indicates that the Budget 2024 tax increase of 75 cents was fully passed on to consumers, and that the trade also increased retail prices by a further non-tax amount.

A summary of the changes to rates and tax content of cigarettes from Budget 2019 to Budget 2024 is set out in the table below.

Table: Changes to Rates and Tax Content of Cigarettes from Budget 2019 to Budget 2024