Fergus O'Dowd (Louth, Fine Gael)
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What we are talking about is the EU food supplement directive which defines clearly the foodstuffs sold in Ireland that are regulated by the Food Safety Authority. Tens of thousands of people consume these products weekly. The directive defines foodstuffs as those products "the purpose of which is to supplement the normal diet and which are concentrated sources of nutrients or other substances with a nutritional or physiological effect, alone or in combination, marketed in dose form" and so on.

Let us consider what is happening in England. In 2016 the actual amount of food supplements sold in the United Kingdom was almost €700 million. It is estimated that one person in every three in the United Kingdom takes a food supplement weekly. In Ireland the sector is worth approximately €60 million per year. The Minister of State can correct me on the matter, if necessary. Tens of thousands of people take supplements.

Many people have come to my office recently. In many cases they are older people, people on pensions or who are in reasonably good health but who are concerned. In many cases they believe, or their doctors or chemists will say, additives such as glucose for joint health, probiotics to help the digestive system or fish oil for good health are useful and beneficial. They believe the proposal by Revenue to increase taxes on all of these products from 1 March by 23% is an imposition that is unacceptable, given their income and health needs. The people who come to me are elderly or have limited income. They are concerned that they will be unable to take the supplement they have been taking for the past ten, 15 or 20 years. That is at the core of the problem.

I do not have the figures, but I am told that the tax take proposed could be approximately €8 million per annum. That may be what the taxpayer will get out of it. However, it will have the effect of discommoding elderly people, women who are pregnant and parents with young children and it is not good enough for them. I have read the Food Safety Authority advice on vitamins and supplements and what the authority states is clear. I am not going to second-guess it on medical advice. Nevertheless, it is of crucial importance that the existing arrangements continue.

I have been advised that if there is a hard Brexit, these products will increase in cost and be more difficult to obtain. That will drive more and more people towards the online business. People buying online from such places as Guernsey in the Channel Islands will be buying products that are unregulated, of unknown composition and with unknown health affects. There are no ethics involved in an online sale of these products, whereas in the sector in Ireland which employs over 1,800 people nationally, there is a code of ethics. It is entirely acceptable for a person to go from his or her doctor to his or her health food shop to buy the nutrient supplement that will be of benefit to him or her. It is entirely unacceptable that we will drive the people concerned into an unregulated market to buy products, especially if they do not know what they will be consuming. It is important for the Minister for Finance to consult business and other interest groups, as well as health bodies, and report back to the Dáil.

Michael D'Arcy (Wexford, Fine Gael)
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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.

Fergus O'Dowd (Louth, Fine Gael)
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I welcome what the Minister of State has said and will concentrate on his last paragraph. He has said the Minister for Finance understands the concerns of the industry on the matter, as well as the concerns of the public and those who consume these products weekly and daily. It is welcome that he has agreed to put in place a process that will ensure the 2019 tax strategy group paper will examine some of the policy choices in the VAT treatment of food supplements. Does the Minister intend to delay the introduction of VAT from 1 March unless the tax strategy group reports in the interim? It is important that the Minister reconsider a decision to commence the increase on food additives from 1 March. It would genuinely, truthfully and honestly help many people, including those people who come into my office and that of the Minister of State. Are we to tell them that they will have to pay it? They may say their health is bad or that they have a problem with arthritis. It means a great deal to people that their disposable income has been preserved. It is particularly important for pensioners not have to pay the additional increase in VAT. The experience in other countries such as the United Kingdom and the unregulated access on the Internet to products that are not defined raise questions. Such products could very well harm the individuals concerned or certainly do them no good. Obviously, that is not what we want to see happen. Therefore, I urge the Minister of State to take on board the views of the people who talk to him and me. The tax strategy group paper should be published and the Minister should decide on how he intends to act before he introduces this high VAT rate.

Michael D'Arcy (Wexford, Fine Gael)
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The Minister's intention at the time of the last budget was that he would not interfere with the Revenue Commissioners in considering the matter.

The Deputy will be aware that the Revenue Commissioners operate independently of the Department of Finance. However, I will relay the Deputy's concern to the Minister when I meet him tomorrow.

I have met representatives from the health food sector. The Minister for Finance, Deputy Donohoe and I will give the sector a very fair hearing. However, there is a challenge created by the hundreds of food supplement products on the market. For some of these, the correct rate of VAT is 23% and others are zero rated. This is unhelpful. As the e-note from Revenue states, products which were zero rated for VAT in 2011 and 2013 will remain at zero rated, however some products are VAT chargeable due to European VAT law. The challenges to continue rating all these products at zero percent is not helpful.

The Minister, Deputy Donohoe, gave an undertaking that the tax strategy group would consider the matter, which it will, and the Minister and I will give the matter a fair hearing.