Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

The standard rate of VAT applies to food supplements. However, there is a Revenue concession which allows a 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 in November 1972 when the marketplace for food supplements was small and the concession meant that vitamins, minerals and fish oil supplements were treated the same as food for VAT purposes.

Since the 1970s, there has been significant growth in the number and complexity of food supplement products on the market, most of which are not covered by the zero rate concession such as supplements containing botanicals and bioactive substances. While these new products apply at the standard rate of VAT, the growing variety of products on the market led to diverging views between Revenue and the industry over which food supplement should be at the zero rate versus the 23%.

Revenue issued ebriefs in 2011 and 2013 in an effort to clarify that only basic vitamins, minerals and fish oil would qualify for the zero rate but disagreement on the applicable VAT rate and queries on specific products continued.

The operation of the current concession has become problematic because of the efforts by some in the industry to exploit the concession to extend the zero rating beyond the scope permitted by Revenue. Some businesses have challenged Revenue guidance and Revenue decisions on the VAT rating of products, giving rise to concerns about compliance within the industry and unfair competition between compliant and non-compliant businesses.

The issue was raised during the debates on the recent Finance Bill. Deputies and Senators looked for clarity for industry on the VAT treatment of food supplements and sought the retention of the zero rate for certain categories of food supplements.

On Committee Stage, the Minister agreed that he would ask his officials to address the matter in the context of the next Tax Strategy Group and stated that he would not interfere in any decision made by Revenue on the matter in the interim.

Revenue published new guidance on 27 December concerning the rate of VAT that applies to food supplements, announcing its intention to apply the 23% VAT rate to most food supplements with effect from 1 March 2019.

It should be noted that human oral medicines, including certain folic acid and other vitamin and mineral products licensed by the Health Products Regulatory Association, will continue to apply at the zero rate of VAT. It is possible to retain these products at the zero rate because they qualify as oral medicines, which are charged to VAT at the zero rate in Ireland under an historical derogation to EU VAT law.

Infant foods will also continue to be zero rated.

I understand the concerns of industry in regard to this matter. That is why, independent of Revenue's decisions on interpretation, the Minister agreed to put in place a process that will conclude in the 2019 Tax Strategy Group paper to examine some of the policy choices around the VAT treatment of food supplements.

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