Ireland’s alcohol excise rates are very high by EU standards. The high Irish alcohol excise position has many negative economic effects.
High alcohol taxes:
- Increase the tendency to source outside the state both legally and illegally.
- Reduce employment. DIGI estimates that the Budget 2014 excise increases caused a loss of about 700 direct and indirect jobs.
- Unfairly penalises moderate consumers of alcohol.
- Are regressive, are unrelated to ability to pay and do not contribute to equity in the tax system.
- Generate a range of adverse economic reactions from consumers including an additional impetus to home consumption with consequent loss of VAT revenues and employment opportunities. DIGI estimates that the Government would generate between €90 million and €125 million in additional VAT receipts each year through a shift of 20% of current off-licence alcohol volumes to public houses. There would be an excise reduction of about €30 million due to reduced consumption caused by the higher prices. The net annual gain of €60 million to €95 million would arise on a continuing basis.
- Constrain the development of the industry, and its export potential.
- Increase the domestic price level.
- Reduce tourism competitiveness compared to several of the mainland EU tourism markets.
A summary of the internationally very high Irish excise rates is presented below.
Ireland’s High Alcohol Taxation in the EU 2013
|Wine||Highest in EU|
|Cider||Second highest in EU|
|Spirits||Third highest in EU|
|Beer||Third highest in EU|
Source. European Spirits Association data based on EU Excise Tables for beer, spirits and wine. Excise on cider relates to earlier year and is based on a smaller sample of countries . Rates as of Oct 2013 and based on October 2013 exchange rates as per EU methodology except for UK which includes the 2014 Budget changes.
- highest wine excise in Europe
- second highest cider excise
- third highest spirits excise after Finland and Sweden
- third highest beer excise after Finland and the UK
Fifteen of the EU members have no excise tax on wine.
The absolute gap between Ireland’s alcohol excise and many other EU countries is substantial. Some illustrative examples are shown below.
The Irish beer excise in 2013 is:
- 11.4 times the German level
- 11.3 times the Spanish level
- 4.8 times the Dutch level
The Irish cider excise (based on 2014 excise data) is:
- 1.9 times the UK level
The Irish spirits excise is:
- 4.7 times the level in Spain
- 4.3 times the Austrian level
- 2.5 times the French level
The Irish wine excise is:
- 7.5 times the Belgian level
- 5.1 times the Dutch level
- 2.9 times the Danish level
There is a substantial difference between the high alcohol excise countries of Ireland, UK, Sweden and Finland and the rest of the EU countries, which have low alcohol excise.
In 2014, the exchequer received:
- €1.42 from every pint costing €4.64, or 30.6% of the price, consumed in bars
- €16.41 or 68.4% of the price of a €24 off-licence bottle of whiskey
- €4.50 or 64% of the price of a €7 off-licence bottle of wine
The impact of the high excise tax in Ireland is illustrated by the following. If Ireland operated the same beer excise as Germany the price of the Irish pint could be reduced from €4.64 to €4.02 a decline of 50 cent in excise and 12 cent in reduced VAT in the excise. This is a decline of 13.4% in the price.
Incentives to legal and illegal out of state sourcing
Current taxation policy in relation to alcohol is incentivising behaviour that removes alcohol taxes from the exchequer. This is particularly concerning in the areas of counterfeit activity and cross-border shopping.
The Government lost substantial revenues because of cross border shopping for alcohol and other products in 2009. Alcohol tax differentials were one of the determinants of this activity. The excise reduction in 2009 offset much of the tax disadvantage and greatly reduced the level of cross border shopping. There is a substantial risk that the recent very large excise increases allied with the VAT and other competitive disadvantages will give a renewed impetus to cross border shopping.
The most recent Revenue Commissioner survey of alcohol prices and tax differences between Northern Ireland and the Republic of Ireland clearly show the significance of the tax differential. The survey refers to April 9 2014. It shows a significant difference between the two areas in terms of tax on alcohol (VAT and excise) for certain alcohol products. Industry sources suggest a larger price differential than indicated by the Revenue data but, of course, the tax differential stays the same.
Comparative prices and tax component in off-licence alcohol products, NI and RoI.
|Product||Price in NI €||Price in RoI||Tax in NI||Tax in RoI||Tax differential, ROI higher|
|Stout 500ml can||2.00||2.25||0.81||0.89||0.08|
|Lager 500 ml can||1.67||2.15||0.82||0.89||0.06|
|Lager 330 ml bottle||1.25||1.65||0.56||0.66||0.10|
|Bottle of vodka||16.16||23.50||11.67||15.57||3.89|
|Bottle of whiskey||22.91||27.46||13.40||17.05||3.66|
|Bottle of wine (Chardonnay)||10.17||10.00||4.18||5.06||0.88|
|Bottle of wine (Saug. Blanc)||7.80||9.85||3.78||5.03||1.24|
The tax difference in spirits is substantial, vodka €3.89 and whiskey €3.66 per bottle. The beer tax difference is lower. The sparkling wine tax difference is also large at €4.14. This would be a particular issue with lower priced sparkling wine. The tax difference in wine varies between €0.88 to €1.24 per bottle. The differentials are sufficiently large to justify “special event” purchasing such as for parties, domestic celebrations and other large scale formal events. In addition ordinary domestic purchasing can be done on an occasional basis providing households have the financial resources to engage in such bulk purchases.
As shown below bulk buying (based on infrequent trips to NI) generates substantial savings in tax in addition to non-tax price advantages. As can be seen from the table below there is a significant financial incentive for cross-border activity – particularly if one considers a basket of goods that would be deemed typical for a large party such as an engagement party.
|Quantity||Product||Tax saved Per unit||Total tax saved|
|Bottle Vodka||€ 3.89||€ 11.67|
|Bottle Whiskey||€ 3.66||€ 10.98|
|18 unit crate Lager||€ 1.80||€ 18.00|
|Bottle sparkling wine||€ 4.14||€ 24.84|
|Crate of Sauvignon Blanc||€ 14.88||€ 89.28|
There is some evidence of a recent increase in cross border shopping and there is the danger and concern that this could accelerate as it did in the past. The tax differential is substantial. Kantor market research shows that the cross-border shopping accounted for 3.4% of Northern Ireland off-licence alcohol sales in the 12 weeks ending Jan 2014. This is a large increase compared with the 2% share in the equivalent period of 2013 and reverses the decline in the share between 2013 and 2012.
The issue of out of state sourcing is not confined to Northern Ireland. Irish holidaymakers go to low alcohol tax countries such as Spain and Portugal and the large tax differential is an incentive to bring home bottles of spirits even allowing for the weight and baggage restrictions. The large recent increases in alcohol excise have significantly increased the incentive to source outside the state with consequent losses of economic activity, jobs and exchequer revenue.
In addition the higher excise gives an incentive to the smuggling of alcohol products. The number of Revenue seizures of alcohol products increased greatly in 2013 compared with previous years. In 2013 there were 507 seizures of alcohol products compared with 359 in 2012, 365 in 2011 and 287 in 2010.
Government should act quickly to reduce this excise generated financial incentive for legal and illegal out of state sourcing of alcohol.
Penalising hard-pressed Irish consumers:
Consumption of alcohol in Ireland has declined dramatically in the last 10 years. Despite this trend Irish consumers pay a much higher price for alcohol – largely due to the tax take in respective countries. The average Irish drinker now pays €733 in alcohol tax per year – which is twice what their German counterparts pay even though the WHO – using 2010 figures – has found that Ireland and German had very similar levels of consumption (11.9 LPA vs 11.8 LPA respectively). In fact Portuguese consumers pay even less alcohol tax per person again (€297) despite the fact that they drink an average of 1 litre of pure alcohol per year more than Irish consumers. (12.9 LPA vs 11.9 LPA)