Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I am pleased to take the opportunity to speak on behalf of the Minister for Finance on the question of the VAT treatment of nicotine replacement patches posed by the Deputy. I thank her for raising the matter on the day in question. It is apt, given the importance of today, a campaign day to encourage people to give up smoking. I congratulate the Deputy on raising the matter on the floor of the House.

The VAT rating of goods and services is governed by the requirements of the EU VAT directive, with which Irish VAT law must comply. In this regard, it may be useful to remind the House of the structure of Ireland's VAT regime. Deputies will be aware that Ireland operates several VAT rates as follows: the standard VAT rate of 23% applies to the majority of goods and services, including cars, petrol, diesel, alcohol, tobacco, electrical equipment, CDs and DVDs; a reduced rate of 13.5% applies mainly to fuel used for heat or light, construction, housing, labour intensive services and general repairs and maintenance; a second reduced rate of 9%, introduced as part of the jobs initiative, applies mainly to tourism-related services, including hotel and holiday accommodation, restaurant services and some entertainment services; while the zero VAT rate applies to most food, children's clothes and shoes and oral medicines.

As the Deputy has correctly pointed out, nicotine replacement patches are subject to the standard rate of VAT of 23%. Unlike other nicotine products such as nicotine inhalers, tablets and chewing gum which are categorised as oral medicines and thereby qualify for the zero rate of VAT, nicotine replacement patches do not fall into this category of oral medicines and are, therefore, correctly subject to the 23% rate of VAT. However, I understand from the Revenue Commissioners that member states have the option under annexe III of the EU VAT directive to apply a reduced rate of VAT to pharmaceutical products of a type normally used for health care, prevention of illness or as treatment for medical purposes. In this regard, since nicotine replacement patches could be considered to meet such criteria, Ireland would have the option to apply a reduced rate to such products. However, constraints imposed by the VAT directive on the number of reduced VAT rates which a member state can operate at any one time do not allow for the possibility of a special reduced VAT rate of 5% to match the treatment in the United Kingdom, as suggested by the Deputy. Article 98 of the VAT directive provides that member states may apply either one or two reduced rates to the goods and services listed in annexe III of the VAT directive. The introduction of a third reduced VAT rate would, therefore, not be possible under EU VAT rules. Accordingly, any reduction in the VAT rate on nicotine replacement patches would, therefore, have to be considered in the context of the existing 9% or 13.5% reduced rates.

Naturally, any proposal to reduce the VAT rate applying to any good or service raises several questions. The Deputy will not be surprised that I emphasise the need to maintain VAT revenues and the need to ensure losses to the Exchequer in these difficult economic times are avoided. Notwithstanding the potential health benefits that may accrue from the use of nicotine replacement patches, any losses in one area must be balanced with savings or increased taxes in another. The issue of the degree to which the consumer might benefit from a reduction in VAT on nicotine replacement patches also arises. Unfortunately in this regard, there is no guarantee that moving standard rated products to a reduced VAT rate would necessarily be reflected in full in the retail prices charged to consumers. Any dilution of the potential benefit to the consumer would be a major concern and effectively negate the promotion of the use of nicotine patch technology.

I thank the Deputy for proposing the issue and hope I have clarified the VAT treatment of nicotine replacement patches and the position on the possibilities available under the EU VAT directive.

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