Tuesday, 29 January 2019
Saincheisteanna Tráthúla - Topical Issue Debate
VAT Rate Increases
The increase on VAT on food supplements to 23% is shocking for huge numbers of people who need and rely on food supplements and vitamins. To put it simply, the Government needs to abandon this misguided plan. I will give the Minister of State a very simple example. Tony is a cancer patient and a constituent of mine. He is a pensioner with a medical card. He spends all of his small income on keeping his house warm and feeding himself. His medication is covered by his medical card, but food supplements and vitamins recommended by his doctor for his health are not included under that scheme. He has had radical surgery and to keep his body functioning, he needs a range of vitamins and food supplements because his body cannot absorb certain vitamins. Currently, these cost him €70 a month. He cannot afford that. If the new VAT level is imposed, that will go up to €86. That will mean he will not be able to afford them at all. Does the Minister of State think it is acceptable that somebody who is ill and is suffering from cancer, whose doctor has recommended these vitamins and food supplements as absolutely essential keep his body functioning, should have to pay at all, or see any increases in what he pays?
He should abandon this, and these products should be covered by the medical card.
It seems incongruous that the Minister of State is proposing to put 23% on all vitamins, minerals, fish oils and food supplements. This move will have a profound effect on those who take vitamins as part of a health programme. It will also disproportionately affect older people. It will also have a profound effect on the many health food shops which will struggle to open because of this proposed hike. A number of people who take supplements and vitamins as part of their health regime contacted our office over the weekend. They stated that if this proposed VAT hike is implemented they will not be able to sustain their need for supplements and vitamins on their income. That is not their fault. The condition has chosen them, but that measure will disproportionately affect them.
I understand the Minister of State has discretion as to whether to implement this hike. There is major public opinion on this issue to the effect that if he implements this, it would be akin to putting VAT on children's shoes in the 1980s, and we saw how that ended up in terms of a Fine Gael Government. He should have a serious rethink about it. There is precedent. In 2014, there was a proposal to put VAT on herbal tea and the Minister at the time abandoned it. The Minister can do the same.
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.
We have heard the script. Will the Minister of State get off the script for a minute? I asked him a question about Tony, who is suffering from cancer. Currently, he is paying €32.95 a month for a probiotic; €10 for thiamin; €10 for magnesium; and €20 for Vivioptal. Recommended by his doctor, he needs these products for his health and he is paying €70 a month for them. He should not be paying that at all. If this VAT change goes ahead, he will be paying €86. He cannot afford that.
What is the Minister of State's answer to that? Does he believe Tony, who is ill, or other vulnerable elderly and sick people who need these products to maintain their health, should be paying for them? I believe they should be covered by the medical card. Does he think it is in any way acceptable that the price of those products will increase and make them unaffordable? These are products doctors are recommending in many cases for the maintenance of people's health.
This goes against what the Minister of State's Government is trying to do about promoting good health. Currently, if I buy fast food, the VAT on the fast food is 13.5%. However, if I want to buy a bottle of cod liver oil after 1 March, if the Minister of State gets his way there will be 23% VAT on it. That does not make sense.
The Minister can gauge opinion in this House, but sometimes it is a bubble. However, a petition on this matter online has been signed by 25,000 people. It is asking that a stop be put on the proposed VAT hike. I am sure that figure will grow over time.
The Minister has four weeks to think about it. He can use his discretion - it has been done before - because this measure does not make any sense. It will have a disproportionate effect on millions of people who use vitamins. I ask him to take guidance from our comments and review this decision.
I want to clarify that the Minister for Finance stated on Committee Stage, and Deputy Barrett was present, that he would not interfere with the Revenue Commissioners. They are independent of the Department of Finance, and the Deputy knows that well. The Revenue has decided to bring clarity to the matter. What the Minister committed to doing, which was more than fair and reasonable, was to have a proper analysis done by the Tax Strategy Group in respect of the zero rating or the rating of VAT at 23%. That is what he said he would do and, having sat down and gone through the analysis with the officials, that is what we will do. That was agreed at the time of the last budget. The Deputy was in the committee meeting and if he chose to accept the Minister's word at that stage, he should accept it here and now.
The Deputy should have called a vote on it, if he wanted to, but I do not believe he did at that stage. I will not comment on an individual case on the floor of the Dáil as I do not believe it is appropriate. However, from my perspective and the perspective of the Minister, Deputy Donohoe, the food and supplements sector will get a fair hearing from the Department of Finance. When the proposal comes to the floor of this Chamber, it will be a matter for this Chamber to decide what to do in the next budget. The Deputy will have his opportunity to comment at that stage.