VAT on protein health supplements long overdue

Government moves in to tax €60 million health food market

Them gains: burgeoning market for such products among gym users. Photograph: Getty

Them gains: burgeoning market for such products among gym users. Photograph: Getty

 

News that food supplements will, after all, become subject to VAT was an unwelcome announcement for the industry. Having escaped mention by the Minister for Finance Paschal Donohoe in his Budget 2020 speech, the industry may have presumed the issue would not arise for another year at least.

Industry groups expressed “shock, dismay and disbelief at the decision”, and characterised it as “a slap in the face for health conscious consumers”.

Yet it can hardly have come as too much of a surprise.

As far back as 2011, Revenue decided there was no reason not to tax food supplements – other than specific specialised items like baby milk powder, folic acid and medical approved items.

Then came a mixture of industry lobbying, technical difficulties in determining the status of supplements product-by-product and political long-fingering.

Apart from the burgeoning market for such products among gym users and slimmers, the sports nutrition sector has become an important growth area for two of Ireland’s largest listed food businesses – Kerry Group and Glanbia. The once discarded byproduct of cheesemaking, whey, became the protein-rich raw material for an industry that boasted a market of €60 million in Ireland as far back as 2016.

That it was zero-rated for VAT at all was simply an accident of history – in the early days, food supplements were clumsily classed as “food” and rated accordingly.

Last year, Revenue determined again that supplements should be subject to VAT at the standard rate – 23 per cent – from March of this year.

More political manoeuvring saw that date postponed to November 1st to allow the Tax Strategy Group examine the issue. It came down unequivocally on the side of Revenue, noting that there was no legal basis in the EU for a zero rate for non-medical supplements.

Ireland is the only country in the EU that does not tax supplements. Even the UK, which also zero rates food, imposes its standard VAT rate of 20 per cent. In the event, the “reduced” 13.5 per cent rate to be announced Thursday by the Minister, should almost be a cause for celebration in the industry.