EU leaders meeting in Bonn yesterday threw a lifeline to the duty free industry with a proposal to charge travellers VAT on alcohol, tobacco and luxury goods but to exempt them from excise duty for a further two and a half years. Excise duty accounts for most of the tax charged in Ireland on alcohol and cigarettes.
The leaders called on the EU Commission last December to review a decision made in 1990 to end all duty free sales within the EU from June this year.
The Commission remained firmly opposed to extending the life of duty free sales but Germany, which currently holds the EU presidency, yesterday called on Brussels to think again about the issue.
EU finance ministers are due to make a decision on the future of duty free on March 15th, and yesterday's proposal puts great pressure on the Commission to change its recommendation.
The Taoiseach, Mr Ahern, welcomed the German proposal and criticised the Commission's review of the duty free ban as inadequate.
"The spirit of the December decision was not reflected in the Commission's document," he said.
The discussion of duty free occupied most of the leaders' lunch conversation and most were critical of the Commission.
Denmark remains opposed to retaining duty free privileges but Mr Ahern said that this opposition was softening and he expressed confidence that the German proposal would be adopted.
VAT is charged at between 15 and 24 per cent in the EU on tobacco, alcohol and some perfumes but excise duty accounts for a larger share of the duty free industry's profits.
The duty free industry claims that thousands of jobs will be lost if duty free is abolished but Mr John Hume of the International Duty Free Confederation said his members would be delighted with yesterday's news from Bonn.
"We are very pleased. All we have been seeking throughout the campaign is a breathing space which would allow the resolution of the economic and social problems arising from closure and to put in place a reasonable and workable successor regime.
"It's simply not true that sales will continue," he said.
