CALL TO ACTION - November 2018/Update December 2018

 

Consumers must act quickly

to avoid a new

Tax on Health

                   

 

 

Government gives green light to 23% tax on Food Supplements by stealth.

Since entering the EU 40 years ago, food supplements have always been sold exempt of VAT in the same way as other foodstuffs with beneficial effects on health.

However, the Revenue Commissioners have recently decided that food supplements should not be treated as ordinary foods for VAT purposes, they should not therefore be entitled to the special VAT free concession, and as a result the standard VAT rate of 23% should be applied. However, Revenue has also taken the view that, while technically not entitled to be sold without VAT, food supplements are technically entitled to be sold at a reduced rate, and they proposed to the Minister of Finance, Paschal Donohoe, that such a reduced rate be introduced in the 2019 Budget.

Unfortunately the Minister decided not to act on this proposal, thereby paving the way for the imposition of VAT at 23% –- contrary to the recommendation of Revenue and the Department of Finance, against the wishes of the industry and without the knowledge and consent of the millions of Irish consumers who chose to invest in their heath by including food supplements in their daily diet.

Immediate Consumers Action could stop this tax.

The industry is up in arms about these developments and actively lobbied TDs to have the Budget amended before it is brought into Law as the Finance Act later in November: to us it is completely unacceptable that a tax on health should be applied for obscure technical reasons, and we think it is utterly nonsensical for the Government to fail to act with conviction on this issue, at the same time as they are introducing a sugar tax to combat Ireland’s endemic obesity problem. Initial feedback is that Individually TD’s don’t like the idea of this new tax and a number have objected strongly in the Dail to what is happening. However, the Minister remained unmoved and is attempting to ‘kick the issue into the long grass by passing it on to a VAT Review Committee in the new year – with the prospect of looking at the matter again in the 2019 Budget. Unfortunately this does not work for Revenue, who have decided that food supplements are not entitled to be sold exempt of VAT, to the industry who are not willing to impose VAT at 23% on consumers , wrongly as we see it, while the Government is trying to make up their minds, and to consumers, who are going to have to pay 23% extra tax on foods that they are entitled to avail of free of VAT as they always have done up till now.

It is unlikely that the industry will be able to make progress now on its own – VAT is a consumer tax and consumers will have to make their voice heard, if politicians are really going to sit up and take notice. So, if you are a consumer of food supplements and you want to stop your self being taxed for taking personal responsibility for your health:

  • Contact your local TD’s, tell them what you think, ask them to demand immediate action*;
  • Sign the online petition in your local retail outlet or on line at stopthisvat.ie

This is an important exercise in democracy 21st century style; please act immediately; don’t put it off. Contact your TDs today and encourage your friends to take up the cause. Information technology can bring a new dimension to democracy, but only if we act and won’t take no for an answer.

 

We cannot complain about politicians doing nothing,

if we are not prepared to take action ourselves!

*The constituency office phone and contact details of TDs, including e-mail addresses, can be accessed on https://www.oireachtas.ie/en/contact-us.

 

Key Issues

What is VAT and how does it work?

Value added tax (VAT) is an EU tax on products and services, collected by businesses from consumers at point of sale and paid over to the Government free-of-charge:

  • Most goods and services are subject to VAT, with very few exceptions;
  • EU Member States are expected to fix a standard rate of VAT between 5% and 30%;
  • Two reduced rates within the same band may also be applied on a limited range of products/services identified in the EU legislation;
  • At present the standard rate of VAT in Ireland is 23%; the official reduced rate is 13.5%, but Ireland also has 9%, 5.2%, 4.8% and 0% (i.e. exempt) on the Statute Books.

How and Why is Food exempt from VAT in Ireland?

In Ireland all food is exempt from VAT unless it is on a restricted list in the VAT legislation:

  • This exemption is a historic concession dating back 40 years to when we first joined the EU and on the basis that foods provides an important social benefit to the end consumer;
  • There is no public record as to what exactly the social benefit is, but the general consensus and practice is that food is required to sustain health.

What are Food Supplements?

Food Supplements are legally foods in the EU with their own Directive (2002/46/EC):

  • Food supplements must be concentrated foodstuffs with nutritional and physiological effect that are supplied in unit dose form to supplement the diet;
  • They must be produced, presented and supplied in compliance with Food Law;
  • They are also subject to additional labelling requirements to ensure that consumers are aware of their nature, safe and effective use as foods.

How are Food Supplements treated for VAT purposes in Ireland?

Historically, all food supplements have been supplied in Ireland exempt of VAT on the simple basis that they are foodstuffs of a kind for human consumption, not prohibited from being VAT exempt by the Schedule in the legislation. This status was confirmed over the years by food supplements being designated Zero VAT on the original Revenue VAT index and by opinions issued on, for instance, vitamins, minerals, fish oils, lecithin, garlic, ginseng and royal jelly.

However, in 2011 Revenue decided that food supplement for muscle growth or body mass increase, or for weight reduction or bodily sculpture cannot benefit from the Zero rate. At the same time they raised doubts as to whether a whole range of other food supplements were entitled to the Zero rate (Revenue e-Brief 70/11). Following a prolonged review of this issues, Revenue eventually concluded just recently in 2018 that food supplements were not foods of a kind entitled to VAT exemption and, this being the case, would fall under the standard VAT rate of 23%. However, Revenue also decided that food supplements were entitled to avail of a reduced rate of VAT, if the Government chose to apply this through an amendment to the Schedule in the legislation; and in fact Revenue and the Department of Finance did ask the Minister of Finance to introduce a reduced rate in the Budget for 2019. However, the Minister chose to do nothing, allowing that Revenue should apply 23% VAT without consumer consultation or awareness.

What are the Concerns about the VAT Treatment of Food Supplements in Ireland?

1.  Ireland is the only EU country that allows food supplements to be sold exempt of VAT; most States apply a reduced VAT rate on some or all food supplements (e.g. Cyprus 5%, Belgium and the Netherlands 6%, France 5.5%);

2.  Revenue concerns about VAT on food supplements are reflected in their VAT e-Brief 70/11:

        i.            Food Supplements do not provide proper sustenance

This special concession only applies to ‘foods that encourage the maintenance of health, through sustenance derived from a normal, healthy diet’;

       ii.            Food Supplements are supplied for particular aims not consistent with being food.

‘The key consideration is whether the food supplement is one that forms part of a person's normal diet for the purposes of sustenance as opposed to enhancing a person's diet with a view to achieving a particular aim’.

       iii.            Food supplements are not properly foods for VAT purposes.

‘the words “food” and "drink" must be given their everyday and ordinary meanings’.

Why Industry considers these concerns are misplaced.

1.   While Ireland may be the only EU country to allow food supplements to be sold exempt of VAT, this is a position that was adopted when we first entered the EU, and logically and consistently applied for 40 years as part of Irish legislation; it is therefore established by precedent.

2.  40 years ago there may have been some doubt about food supplements and their legal status, however in 2002 the EU passed a Directive (2002/46/EU) that unequivocally established that food supplements are foods and set the standards to be complied with by virtue of this status.

         i.            Food supplements do provide sustenance

The Directive requires that food supplements be concentrated foodstuffs with nutritional and physiological effects, they cannot contain non-food ingredients and they cannot function in a way that is inconsistent with their status as foods.

Food supplements are designed for the nutritional and physiological effects they provide as part of a healthy diet: they contain instructions to be consumed regularly as part of the diet, and not be used to replace a normal healthy diet.

 ii.            There is nothing about the purposes for which legitimate food supplements are supplied that is inconsistent with their being food because the claims associated with them are strictly controlled under Food Law by the Health Claims Regulation. This recognises that foods can be used to provide nutrition, to maintain or improve health, as well as to reduce the risk factors associated with disease.

iii.            It should be noted that, despite our food abundance, normal Irish diets are typically not healthy – this is why we suffer from an epidemic of food-related illnesses and largely why people consume food supplements.

        iv.            What we consider to be food is not limited to what we ordinarily consume as food

Of course, on a purely superficial basis you could argue that food supplements do not look like what most of us ordinarily consider foods to be; but this is no reason to say that they are not food. A vegetarian does not consider meat as food, but this does not entitle them to insist that meat is not food for someone else, nor that meat should be taxed as a result. It is the same with food supplements: if you did not know that food supplements are comprised of foodstuffs with the same nutritional and physiological effects as other foods, you may take the view that they are not foods based on their appearance alone, but it is hard to see how you could justify saying that food supplements are not foods once you are aware that they are made up of concentrated foodstuffs, when they are as strictly required to be produced, presented and supplied in the same way as other foods, and when they are legally recognised as foods.

What are the Options available to the Government?

It is important, when considering the rate of VAT applicable to food supplements, to recognise that this is first and foremost a consumer issue because it is ultimately the consumer who benefits from their consumption and who pays the tax … or not!

At this time, given that Revenue has identified that they have an intractable technical problem with the VAT classification of food supplements, it is the responsibility of the Government to set a rate by amending the Schedule in the VAT legislation – this is what Revenue has asked them to do and this is what the Table in the VAT legislation is for. It is absolutely not acceptable for the Government to try and opt out by doing nothing or to procrastinate in a way that results in a heavy tax being imposed on consumers contrary to their wishes and contrary to their legitimate entitlements.

The options available to the Government are:

1. Confirm that food supplements should continue to be supplied exempt of VAT, as was recently done for herbal teas, on the basis that:

  • Food supplements are a class of product entitled to special VAT treatment;
  • The entitlement to VAT exemption is established by 40 years of consistent practice*.

* EU VAT Directive (Council Directive 2006/112/EC) generally provides that supplies of goods and services are chargeable to VAT at the standard rate but that lower rates are permitted in very limited circumstances.  Food products can only benefit from the zero rating in accordance with Article 110 of the VAT Directive which permits the retention of the zero rate where the products were liable to VAT at the zero rate on and from 1 January 1991 – which food supplements were.

2. Set a reduced rate of VAT on the basis of a new distinction being made between foods that are essential for health (e.g. staple foods), and foods that are important for health, (e.g. food supplements). The standard reduced rate applied is 13.5%, alternatively, a lower reduced rate on the Statute Book could be applied**.

** EU guidance allows Member States to use two reduced rates of VAT between 5% and 30%; Ireland is not limited to the 13.5% rate, typically applied. Given the health value of food supplements and the importance that consumers attribute to them in the context of health maintenance and establishing a healthy diet, the industry considers that the lowest acceptable rate currently on the Irish Statute Book should in this instance be applied, which is 5.2%.

3. Apply the standard rate (23%) on the basis that food supplements do not provide a health benefit to consumers and should be taxed accordingly.

 

 

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