Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Currently, the standard rate of VAT applies to food supplements. However, there is a Revenue concession that allows the zero rate to be applied to certain types of food supplements, such as vitamins, minerals and fish oils. The practice of zero rating vitamins, minerals and fish oil food supplements has been applied since the introduction of VAT on 1 November 1972 when the marketplace for food supplements was small. However, this concession is proving to be problematic.

Elements of the food supplement industry have made a sustained challenge to the application of the standard rate of VAT to certain food supplements. There are concerns that, while elements of the industry apply the correct rates, others have a competitive advantage by applying the zero rate to products that are properly liable at the 23% rate. The crux of the argument is generally that the products concerned are similar and compete with other products that are zero rated. Protracted correspondence on the issues has raised concerns regarding possible non-compliance in the sector, in particular the zero rating of products that should be standard rated, which may result in a degree of unfair competition between compliant and non-compliant businesses.

Revenue's position is that food supplements are not food and, as such, are not entitled under VAT law to the zero rate of VAT. Therefore, the standard rate of VAT applies. The concession outlined in Revenue guidance is no longer tenable.

After consultations between Revenue, the Department of Health and my Department concerning policy options that might be considered in the context of Finance Bill 2018, reservations were expressed by the Department of Health as to the implications that a change might have on the promotion of food supplements in certain circumstances. For these reasons, I decided not to make any change in this year's budget and Finance Bill. I am advised that Revenue will now consider how to proceed based on the existing legislation, including whether any change to its guidance is necessary.