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Home > Dail Eireann topical issue debate. VAT rate exemptions [Tobacco].

[Oireachtas] Dail Eireann topical issue debate. VAT rate exemptions [Tobacco]. (13 Feb 2013)

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Deputy Ann Phelan: On the day that is in it, Ash Wednesday, I thank the Leas-Cheann Comhairle for allowing me to introduce this Topical Issue. I am keen to discuss how we might be able to help people. I know many are struggling with their conscience today and trying to decide whether they should give up cigarettes. Taking up smoking is easy, but it is remarkably difficult to give it up. 


Like many others, I took up smoking in my teens because my peers smoked. We were all trying to look cool at the time. Unfortunately, the years have proved it to be a rather unwise decision. Like anyone else of that age, I never looked to the future and was oblivious to any harm caused, but harm was being done unbeknownst to me.


Science has come up with new methods aimed at helping people to give up smoking. A range of products are now available for sale to help those who find themselves hooked on cigarettes to such an extent that it is a multimillion dollar worldwide industry. If the Government and society seriously want people to give up smoking and live healthier lives, they should try their best to help those who wish to stop. Currently, all of the products aimed at helping people to give up smoking, including mouth sprays, patches, chewing gum and artificial cigarettes, are subject to a full VAT rate of 23%, whereas over the Border in Northern Ireland and Britain the Chancellor of the Exchequer has reduced the VAT rate on these products to a special rate of 5%.


I call on the Minister of Finance to consider introducing a special rate of VAT to encourage people to kick the habit. This may seem like a costly move, but it should be weighed against the current spend on trying to heal those with smoking-related illnesses, estimated to be €1.5 billion. According to figures released by the Irish Heart Foundation today, the Government spends over 100 times more on treating tobacco-related illnesses than on services designed to help people to quit. The foundation has also stated more resources are needed if we are to reduce the 14 deaths every day from smoking-related illnesses.


Owing to legislation enacted in recent years we have made great strides in reducing the number who smoke, but we have a long way to go. The problem with smoking is that the damage is often incremental and, therefore, giving up is put on the long finger. Thankfully, new legislation means that, from now on, all cigarette packets must display graphic images illustrating the long-term effects of nicotine and tar on our vital organs. This method has proved to be effective in communicating the true consequences of smoking and has worked especially well in Australia.


Figures from ASH Ireland indicate the prevalence of smoking in Ireland is somewhere in the region of 26% to 29%. These rates are far too high. The banning of smoking in public places has been a tremendous success. I have remarked already that a special rate of VAT would be of great assistance in helping people to stop. It has been noted that the cost of using therapies to help people to stop smoking has kept some from giving it up. Furthermore, nicotine replacement therapies are sold from behind the counter in pharmacies, whereas in the United Kingdom and other countries they are sold off the shelf in a wide variety of stores, not only in chemists, thereby easing the burden of buying them. I hope the Minister of State will take my suggestion on board.


Minister of State at the Department of Finance (Deputy Brian Hayes): I am pleased to take the opportunity to speak on behalf of the Minister for Finance on the question of the VAT treatment of nicotine replacement patches posed by the Deputy. I thank her for raising the matter on the day in question. It is apt, given the importance of today, a campaign day to encourage people to give up smoking. I congratulate the Deputy on raising the matter on the floor of the House.


The VAT rating of goods and services is governed by the requirements of the EU VAT directive, with which Irish VAT law must comply. In this regard, it may be useful to remind the House of the structure of Ireland's VAT regime. Deputies will be aware that Ireland operates several VAT rates as follows: the standard VAT rate of 23% applies to the majority of goods and services, including cars, petrol, diesel, alcohol, tobacco, electrical equipment, CDs and DVDs; a reduced rate of 13.5% applies mainly to fuel used for heat or light, construction, housing, labour intensive services and general repairs and maintenance; a second reduced rate of 9%, introduced as part of the jobs initiative, applies mainly to tourism-related services, including hotel and holiday accommodation, restaurant services and some entertainment services; while the zero VAT rate applies to most food, children's clothes and shoes and oral medicines.


As the Deputy has correctly pointed out, nicotine replacement patches are subject to the standard rate of VAT of 23%. Unlike other nicotine products such as nicotine inhalers, tablets and chewing gum which are categorised as oral medicines and thereby qualify for the zero rate of VAT, nicotine replacement patches do not fall into this category of oral medicines and are, therefore, correctly subject to the 23% rate of VAT. However, I understand from the Revenue Commissioners that member states have the option under annexe III of the EU VAT directive to apply a reduced rate of VAT to pharmaceutical products of a type normally used for health care, prevention of illness or as treatment for medical purposes. In this regard, since nicotine replacement patches could be considered to meet such criteria, Ireland would have the option to apply a reduced rate to such products.


However, constraints imposed by the VAT directive on the number of reduced VAT rates which a member state can operate at any one time do not allow for the possibility of a special reduced VAT rate of 5% to match the treatment in the United Kingdom, as suggested by the Deputy. Article 98 of the VAT directive provides that member states may apply either one or two reduced rates to the goods and services listed in annexe III of the VAT directive. The introduction of a third reduced VAT rate would, therefore, not be possible under EU VAT rules. Accordingly, any reduction in the VAT rate on nicotine replacement patches would, therefore, have to be considered in the context of the existing 9% or 13.5% reduced rates.


Naturally, any proposal to reduce the VAT rate applying to any good or service raises several questions. The Deputy will not be surprised that I emphasise the need to maintain VAT revenues and the need to ensure losses to the Exchequer in these difficult economic times are avoided. Notwithstanding the potential health benefits that may accrue from the use of nicotine replacement patches, any losses in one area must be balanced with savings or increased taxes in another. The issue of the degree to which the consumer might benefit from a reduction in VAT on nicotine replacement patches also arises. Unfortunately in this regard, there is no guarantee that moving standard rated products to a reduced VAT rate would necessarily be reflected in full in the retail prices charged to consumers. Any dilution of the potential benefit to the consumer would be a major concern and effectively negate the promotion of the use of nicotine patch technology.


I thank the Deputy for proposing the issue and hope I have clarified the VAT treatment of nicotine replacement patches and the position on the possibilities available under the EU VAT directive.


Deputy Ann Phelan:I take on board the comments of the Minister of State on the constraints under which he is operating. However, I maintain that we should pursue the option, even under a pilot scheme. If the rate was reduced to 9% or if the products were more freely available and not limited to purchase in pharmacies, it would go a long way. If someone wants to make a change, we should ensure the pain of changing is mitigated. We need to make it easier, particularly for anyone in receipt of benefits, as many are. Cigarette smoking represents a substantial loss of income for such persons.


Dáil Éireann Debate

Vol. 792 No. 2

13 February 2013

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