Colm Burke (Cork North-Central, Fine Gael)
Link to this: Individually | In context

329. To ask the Minister for Finance the extent to which the experience of the taxation of e-cigarettes in other jurisdictions have informed thinking around the proposed e-liquids tax; what jurisdictions were examined, and how his officials arrive at the figure of €500 per litre; and if he will make a statement on the matter. [25229/25]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context

The taxation of e-cigarettes and novel products, including e-liquids, is expected to be addressed at EU level through a revision of the Tobacco Tax Directive (2011/64/EU). However, the Commission’s proposals for revision of the Directive have been postponed on a number of occasions in the last few years, and in the meantime, a significant number of Member States (MS) have moved to introduce domestic taxes on e-cigarette products. In the interest of public health, we too have decided to proceed with the introduction of a national tax. Nonetheless, the introduction of a harmonised tax framework for these products across the EU remains our preferred approach, as it will be the most effective way to address the policy and operational challenges that arise.

Legislation for E-liquid Products Tax (EPT) was enacted in Finance Act 2024 and is subject to commencement by Ministerial Order. Under the new law, EPT will apply to both nicotine-containing and non-nicotine-containing e-liquid products. Similar to the approach for other national excises, the taxing point will be the first supply of e-liquid product in the State and the tax will follow Revenue’s standard model of self-assessment. Suppliers of e-liquid product will be required to register with Revenue in advance of making a first supply of e-liquid products in the State. These suppliers will be liable to account for and pay the tax.

As a non-harmonised national excise, the operation of EPT has to be compatible with the EU Single Market rules which preclude the use of cross-border movement controls. During the design of EPT, serious consideration was given by Revenue and my Department to the appropriate charging point for the tax. Approaches to other Irish excises were considered as were approaches to similar taxes in other countries. It was concluded that charging EPT at the point of first supply of the product in the State is, on balance, the most appropriate approach. In particular, the alternative model of a ‘released for consumption’ approach to charging EPT would require the development and operation of a complex national system of tax warehousing and controls, outside of the EU-wide Excise Movement and Control System. Crucially, these could only have very limited effectiveness in a non-harmonized regime - given that they could only operate on a national basis and without recourse to cross-border controls - and the cost of setting up and operating such a system could not be justified given such limitations on its potential effectiveness.

In designing the EPT, approaches taken across other EU MS with an existing domestic tax on e-liquid products were examined. We sought to align our EPT provisions with the taxation measures in place in other MS, in order to create a level of cohesion in advance of a revision of Directive 2011/64/EU. While the legislative provisions in place elsewhere in the EU are available online, my Department reached out to Denmark and Finland in particular to get information on their experience of an e-cigarette tax.

A specific tax per millilitre of e-liquid is the most common approach taken across other EU MS with a national e-liquid products tax. While nicotine content is the basis for taxation in some instances, this creates additional complexities, particularly in relation to compliance. Furthermore, non-nicotine-containing e-liquids are not harmless, and contain several chemicals which are detrimental to respiratory health. Given the difficulties in determining whether e-liquids contain nicotine and the level of nicotine they may contain, product testing may be required which would increase the costs and compliance procedures required as part of administrating the tax. Additionally, a nicotine-based tax would be difficult to administer and enforce due to the availability of DIY mixtures and the ability to sell and purchase components separately. The potential for tax evasion and the ability to buy e-liquid ingredients separately creates risks in relation to public health and tax collection that had to be considered.

Current rates applied by other MSs which tax e-liquids range from approximately €0.10 to €0.30 per millilitre of e-liquid. However, many MSs, such as Germany and Poland, are progressively increasing their taxes over the coming years. While it is acknowledged that the rate of tax to be applied in Ireland is higher than that applied in other MS, as a high excise country in relation to traditional tobacco products and with a high e-cigarette prevalence rate in comparison to other MS, the tax rate to be applied can be justified. While a number of tax rate options were explored, the rate of €500 per litre was determined by Ministerial decision as part of the Budget 2025 package.

Given the Single Market rules which allow free movement of goods, this lack of harmonisation of the tax rules limits both the effectiveness and the efficiency of any domestic approaches that individual Member States can take to taxing these products. This is why my Department, along with similar authorities in fifteen other MS made a joint statement in December 2024 calling on the new Commission to make the modernisation of tobacco taxation legislation at EU level a key priority for its upcoming term.