The Revenue Commissioners flagged "heightened concerns" over the growing €684m black market in tobacco amid discussions over hiking the price of cigarettes in this year's budget.
In pre-budget talks, former Finance Minister Paschal Donohoe was warned of the quickly "diminishing returns" from price hikes for smokers.
The minister was told that illegal cigarettes now accounted for 26% of the market with an estimated loss to the Exchequer of €590m a year.
For roll-your-own products, the share of illegal sales was even higher at 36% with a further hit of €94m for the taxpayer.
In the document, officials said they were expecting official correspondence from the chairman of the Revenue Commissioners on the extent of the tobacco black market.
The submission said: "Fully acknowledging the critical role that taxation plays in a public health policy context, the department would have concerns regarding the diminishing returns from increases in tobacco tax".
"Likewise, colleagues in [Revenue] have expressed heightened concerns regarding the increase in illegal and non-Irish duty paid tobacco," it added.
The pre-budget brief also said that the sugar tax was not operating exactly as intended in retail or hospitality.
It said many shops, cafés, restaurants, and hotels were not differentiating between sugary and non-sugary versions of soft drinks.
The submission said this was undermining the purpose of the tax and that the Department of Health was seeking a rise in line with inflation.
"A study on the pass-through rate of the tax shows that the majority of hospitality and retail settings are setting the same price for the non-diet version and the diet/sugar-free version of the same products," it said.
"This undermines both the differential pricing disincentive and the signalling mechanisms through which the [sugar tax] can potentially influence healthier choices," it added.
Minister Donohoe was told as well that there were conflicting demands over excise duty on booze.
Industry was looking for a 10% cut in tax rates while Alcohol Action Ireland was seeking an increase of 15%.
An adjustment on betting duty was also noted in the submission, which meant that 2024 receipts were boosted by €40m, according to the FOI records.
In the end, the finance minister opted for the status quo in taxation on betting, booze, and sugary drinks.
He did sign off on a 50-cent increase on the tobacco products tax. "No change in any other tax," a note from Paschal Donohoe said.
Asked about the records, a Department of Finance spokeswoman said: "[We have] ongoing engagements with Revenue regarding the operation of taxes generally, including Tobacco Products Tax (TPT)".
"In addition to the increases to TPT rates implemented through a financial resolution on budget night, Revenue has announced new regulations - the Control of Excisable Products (Amendment) Regulations 2025 - which will come into effect on 9 December," she added.
Reporting by Ken Foxe
