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

I am pleased to take the opportunity on behalf of the Minister for Finance to speak on the issue of the VAT treatment of food supplements.

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 supplement 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. At the time, 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. They include supplements containing botanicals and bioactive substances. While the new products apply at the standard rate of VAT, the growing variety of products in the market led to diverging views between Revenue and the industry on which food supplement should be at the zero rate versus the 23% rate. Revenue issued e-briefs 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 has continued. The operation of the current concession has become problematic owing to efforts by some businesses in the industry to exploit the concession to extend zero-rating beyond the scope permitted by Revenue. These businesses have challenged the Revenue guidance and decisions on the VAT rating of products, giving rise to serious concern about compliance within the industry and unfair competition between compliant and non-compliant businesses.

The issue was raised during debates on last year's Finance Bill. Deputies and Senators looked for clarity for the 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 to ask his officials to address the matter in the context of the next tax strategy group and also stated he would not interfere in any decision made by Revenue on the matter in the interim. Revenue published new guidance on 27 December on the rate of VAT that applied to food supplements, announcing the intention to apply the 23% VAT rate to most food supplements with effect from 1 March 2019. It should be noted, however, that human oral medicines, including certain folic acid and other vitamin and mineral products, licensed by the Health Products Regulatory Authority, 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 from EU VAT law. In addition, infant foods and food products such as yoghurts that contain probiotic ingredients will also continue to be zero-rated.

I understand the concerns of the industry on 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 in the VAT treatment of food supplements.

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