I propose to take Questions Nos. 126, 127, 132, 140 and 147 together.
As the Deputies are aware, Irish VAT legislation does not provide a zero rate for food supplement products; instead they are subject to the standard rate of VAT (23%). Shortly after the introduction of VAT, Revenue allowed the zero rate to be applied to certain food supplement products (vitamins, minerals and fish oils). This concessionary approach expanded as the market developed over the years and resulted in the zero rating by Revenue of further similar products, including products other than vitamins, minerals and fish oils.
Revenue has acknowledged that the scope of its concessionary approach broadened progressively over time to the point that it had become increasingly difficult to maintain an effective distinction between food supplement products that could benefit from the zero rate and those that were standard rated. Revenue acknowledges that this concessionary approach was unsatisfactory and led to diverging and inconsistent practices, and there were continuous efforts by elements in the industry to expand its scope.
Following complaints from the Irish Health Trade Association (IHTA), Revenue conducted a comprehensive review of the VAT treatment of food supplement products, including getting an expert report on the definition of food for the purposes of the VAT Consolidation Act. The expert prepared a detailed, scientific report that concluded that food supplement products are not conventional food. Based on the expert report and its own legal analysis, Revenue concluded that the status quo was no longer sustainable. Following the review, Revenue engaged with my Department concerning policy options that might be considered in the context of Finance Bill 2018. The relevant legislation was not changed in Finance Bill 2018 and therefore Revenue issued new guidance in December 2018 which removed the concessionary zero rating of various food supplement products with effect from 1 March 2019.
Following representation from Deputies and from the industry, I wrote to Revenue outlining my plans to examine the policy and legislative options for the taxation of food supplement products in the context of Finance Bill 2019. Revenue responded by delaying the withdrawal of its concessionary zero rating of the food supplement products concerned. This allowed time for my Department to carry out a public consultation on the taxation of food supplement products.
The public consultation ran from 18 April to 24 May 2019 and sought input from a wide range of interested parties, including from health and nutrition experts and the Minister for Health. In total, 121 submissions were received. This included submissions from individuals, businesses, lobby groups and a political party. The results of the consultation were included in the recently published Tax Strategy Group paper on VAT. The options set out in the TSG paper are the only options available; either the standard rate is maintained, or the reduced rate is introduced.
I am making provision in Finance Bill 2019 to apply the 13.5% rate of VAT to all food supplement products, which will take effect from 1 January 2020. This measure is expected to be cost neutral. The food supplement industry is relatively small in Ireland (approx. €60 million) and the loss to the Exchequer incurred as a result of the lowering of the rate for products currently liable to the standard rate of VAT (23%), should be offset by the increase to products that previously were concessionally zero rated.
Foods for specific groups such as infant follow-on formulae and infant foods, foods for special medical purposes and specially formulated foods (e.g. total diet replacement for weight control) will remain zero rated. These are well established and defined categories of food that are essential for vulnerable groups of the population. Fortified foods, such as yoghurts and cereals fortified with vitamins and minerals, will also remain zero rated as they are food.
Folic acid, vitamin and mineral products for human oral use which are licensed or authorised as medicines by the Health Products Regulatory Authority (‘HPRA’) will remain zero rated under a different VAT provision.