Bagels and garlic bread set for sharp price rise as VAT rules change

 

THE PRICE of bagels, croissants, garlic bread and a range of other similar products is likely to increase significantly in the weeks ahead after Revenue decided they were not sufficiently bread-like to be exempt from VAT.

The move will see the products fall into the tax net for the first time and may lead to them increasing in price by as much as 13.5 per cent with almost immediate effect.

Suppliers and retailers are angry at the changes to the VAT rules and claim they have not been properly informed by Revenue as to when the new rules come into effect.

Minister for Finance Michael Noonan met representatives of the baking industry yesterday and agreed to allow the status quo to remain in place for at least a week while he held more consultations.

One supplier told The Irish Timesthat they had received no formal notification from Revenue and had only come across the information on its website by accident.

They said they had no idea as to when they would have to begin imposing VAT on the products and what products would be affected.

Retailers and suppliers of bakery products said they had long considered these items, as well as a range of more exotic bread-based products, to be exempt from VAT and claimed that this week’s changes are the first significant changes since the early 1970s.

Revenue disagrees, however, and last night it insisted that it was a “clarification of the position in relation to VAT on bakery products and is currently in effect”.

Its “clarification” briefing said that although the common sliced pan would remain zero-rated for VAT, other bakery items would have to be subject to VAT of 13.5 per cent.

The note said such products were liable for VAT because they did not “generally conform to the ingredient definition of bread”.

It claimed that the ingredient definition of bread was “very specific and although products, such as garlic bread, onion bread and fennel bread are marketed as bread, these products do not generally conform to the ingredient definition”.

Retailers and wholesalers have insisted that the move will hit consumers hard and significantly affect their businesses.

One told The Irish Timesthat it had been given a week to start collecting VAT on these products. He said it was almost inevitable that the cost of the VAT move would be passed on to consumers with immediate effect.