Could Brexit and the Irish sugar tax lead to soft drink smuggling?
With Brexit tensions riding high, could a sugar levy could be devastating for the Irish soft drinks industry? Elliot Gardner finds out more.
In 2016, it was announced that the Republic of Ireland (RoI) would be subject to a levy on sugar sweetened drinks, or ‘sugar tax’, similar to proposed measures planned in the UK to be carried out in mid-2018.
Ireland already has the third highest VAT rate on soft drinks in the EU at 23% compared to the 15.5% EU average, and the potential impact of Brexit continues to raise economical concerns for both the Irish government and Irish businesses. Now the Irish Beverage Council has claimed that the implementation of an Irish sugar tax would be the final step in sparking a perfect storm for the soft drink industry in the republic.
“Soft drinks in Northern Ireland are considerably cheaper than they are here,” explains Colm Jordan, director of the Irish Beverage Council, and with prices set to increase further when the Irish sugar tax comes into effect in the RoI in 2018, the disparity between drinks in Northern Ireland and those south of the border is set to increase, potentially leading, according to the Irish Business Council, to the smuggling of goods across the border, and substantial losses for the RoI soft drinks industry.
A disparity of price
At their base rate, because of the different VAT rates in the Republic of Ireland and the United Kingdom, and thus Northern Ireland, soft drinks are cheaper north of the border. According to Jordan, this in itself acts as an argument against the implementation of a sugar levy: “if you were to implement a sugar levy in the UK, you'd pretty much come to parity in terms of price. But instead the Irish authorities have said ‘because this is happening in the UK and because of health reasons, we're going to implement this in Ireland'.”
As an aside, it is worth noting that the Irish Beverage Council is an opponent to the claim that a sugar tax in the country would have a positive health impact, citing the Institution of Public Health in Ireland’s assessment of global research relating to the impact of country-wide sugar levies.
“We also have the situation where the euro and the pound are heading to parity,” says Jordan, “and you have shoppers increasingly heading north.” According to research last year from polling company Red C, 34% of RoI citizens said they would be heading north of the border to do their Christmas shopping, and as of last year, a standard grocery shop in Northern Ireland is approximately 15% cheaper than an equivalent purchase in the RoI.
All this evidence, according to the Irish Beverage Council, indicates an estimated 11% drop in sales for the Irish soft drinks industry, especially when taking into account the potential grey market that could begin to exist between the countries. “When we talk about the unofficial grey market, we're talking about the wholesalers, retailers, and individuals going across the border, buying products in the UK, not paying the UK sugar levy as they're taking it out of the jurisdiction, but also not registering the goods here. So between that grey market activity and cross border shopping, you begin to see that 11% drop.”
“If you look at the amount of money people are spending on soft drinks, you come up with about €278m, and an 11% chunk of that results in a €30m loss,” claims Jordan. This is despite claims from the Irish Department of Finance that the tax will bring in €40m for the country a year. “You then have to think about the money that's spent on administering the tax; you also have to think about the cost of combatting fraud, such as having customs officials chasing the 300 entry points to and from Northern Ireland from the RoI.”
The Brexit issue has also reared its head once again, complicating matters even further. Because of the current ease of trade between the UK and the RoI, there are soft drinks manufacturers that trade freely across between Northern and the Republic of Ireland, bringing in ingredients from either side of the border. The Irish soft drinks industry, as with a myriad of other sectors, is completely intertwined between both jurisdictions.
“We don't know what Brexit is going to bring. Is there going to be a tariff in place? Are trucks at the border going to be delayed for half an hour being checked? It all has a huge impact on cost, and we have absolutely no idea what those costs are going to be. When you add that on top of a sugar tax, you begin to see that there would be an incredible incentive to jump the border and buy products there.”