Cian O'Callaghan (Dublin Bay North, Social Democrats)
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254. To ask the Minister for Finance whether he read a report (details supplied) looking at the implications of the proposed e-liquids product tax, which has identified potential flaws in the self-declaration model; his views on this report and its findings; and if he will make a statement on the matter. [35200/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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The said report on Ireland’s E-Liquid Products Tax (EPT), as legislated for in Chapter 1 of Part 2 of Finance Act 2024, was shared with my department by industry in recent months. The report details the potential impacts of the EPT on the Irish market the implications of the tax structure. The report underlines that the Irish tax rate of €0.50 per millilitre, which will apply to both nicotine-containing and non-nicotine-containing e-liquid products, is significantly higher than the EU average and the self-assessment method of tax return will create its own challenges.

The report indicates that the size of the illicit e-liquid market in Ireland could increase further under a self-declaration tax regime. The effectiveness of a tax stamp approach is highlighted, with enforcement being a major differentiator. The report cautions that without strong monitoring, the self-assessment tax model could exacerbate tax evasion and fuel the grey market.

Ultimately, the report recommends a tax stamp regime to maximize tax revenues, minimize illicit trade, and ensure regulatory effectiveness. The report also notes that while the new tax may help deter youth usage, it risks pushing former smokers back toward cigarettes if vaping becomes less accessible or affordable. The report highlights that a balance must be struck between public health objectives, tax policy, and market effects.

As a non-harmonised national excise, the operation of EPT must be compatible with the EU Single Market rules which preclude the use of cross-border movement controls. These rules mean that e-liquid products coming into the State from other Member States or Northern Ireland (which is part of the Single Market for goods) cannot be subject to the type of cross-border movement controls that are integral to the regime for the existing EU-harmonised excises, such as tobacco.

Ireland currently operates a tax stamp system in accordance with section 73 of Finance Act 2005 (as amended) in respect of two specified tobacco products: cigarettes and roll-your-own tobacco. The taxation of tobacco products generally is harmonised across the EU, which makes the products subject to the strict control and movement system for excisable products (EMCS). The EMCS is an EU-wide system, administered by national tax authorities, under which the movement of the product is tightly controlled through authorised tax warehouses with duty suspension arrangements. The charge to tax on a harmonised excisable product (such as tobacco) arises when the product is ‘released for consumption’ from the tax warehouse, and in the case of the specified tobacco products, this is the point at which the tax stamps are applied.

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 (non-EMCS) system of tax warehousing and controls; 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.

A national tax system would do nothing to prevent the import, for personal consumption, of e-liquid products from other countries, and therefore would not address to a satisfactory degree the concern about illicit product or product purchased legally (non-Irish duty paid) from other Member States. In line with other taxes, Revenue will use a range of risk identification programmes to identify and confront non-compliance with the tax requirements.

Ireland’s existing tax stamp is closely integrated to the ‘released for consumption’ tax model used for tobacco. Having regard to the different tax model (‘first supply’) that has been legislated for EPT, it is not clear at this stage that a tax stamp would be a useful tool in securing the collection of the new tax. However, this could be reviewed in the future, in light of the actual experience of operating EPT when it is up and running.

Policy and legislation regarding e-liquid and e-cigarette products, including regulation of their content, and of their sale and promotion is dealt with by my colleague the Minister for Health and her Department, and enforced principally through the network of Environmental Health Officers operating under the Health Service Executive. This will remain the case following the commencement of EPT.