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

I thank the Senator. Currently, the standard rate of VAT applies to food supplements. However, there is a Revenue concession which allows the zero rate to be applied to certain types of food supplements, including 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. However, this concession is proving to be extremely problematic.

Elements of the food supplement industry have made a sustained challenge to the application of the standard rate of VAT to a range of food supplements. There are concerns that while elements of the industry apply the correct rates, others have a competitive advantage by applying the zero rate to products that are properly liable at the 23% VAT rate. Their argument is generally that the products concerned are similar and compete with other products that are zero rated.

There has been protracted correspondence on the issue which has raised concerns regarding possible non-compliance in the sector, in particular, the zero rating of products that should be standard rated, which may result in a degree of unfair competition between compliant and non-compliant businesses.

Revenue’s position is that food supplements are not food and, as such, are not entitled under VAT law to the zero rate of VAT; therefore, the standard rate of VAT applies. The concession in regard to vitamins and the like is proving unworkable as the industry seeks to use the concession to achieve a zero rating for much of the product range in the sector.

After consultations between Revenue, the Department of Health and the Department of Finance concerning policy options that might be considered in the context of the recent budget, reservations were expressed by the Department of Health as to the implications a change might have on the promotion of food supplements in certain circumstances. For these reasons, the Minister decided not to make any changes in this year’s budget and Finance Bill.

However, as the Minister stated during the Dáil debates on the matter, he has asked the Department’s officials to address this matter in the context of the tax strategy group next year and potentially the matter will be considered in subsequent budgets.