– Paschal Donohoe will introduce the final budget Tuesday 8 October. In such a febrile environment hemust avoid making things worse.
– Imposition of VAT on food supplements will raise negligible amount of revenue for the Exhequer, while reducing retail employment.
– Minister Donohoe can still do something useful for SMEs with his budget considerations.
Paschal Donohoe will introduce the final budget of the 32nd Dáil on Tuesday next.
He does so as the country is beset by Brexit uncertainty, a waning global economy, and a protectionist United States that has just imposed tariffs on some of our most successful exports. In such a febrile environment, the most important priority for him is to avoid making anything worse.
By now, Minister Donohoe will have received a detailed submission from our colleagues in Health Stores Ireland concerning the imposition of VAT on food supplements.
The Minister has unfortunately been given a partial and factually inaccurate narrative from Revenue on the status of VAT on food supplements in this country.
It is imperative for him to get this issue right next Tuesday.
Imposition of VAT will raise a negligible amount of revenue for the Exchequer, just as the imposition of VAT on protein supplements did some years ago. These products will move from the main street to online retail. The loss of employment after a VAT imposition on food supplements will cost the exchequer tens of millions in lost PAYE, USC and PRSI, as up to 800 people could lose their jobs.
People who rely on products supplying iron and vitamin B12, to address malabsorption and diet deficiencies, will suffer an immediate increase in the cost of their food supplements.
Consumption taxes serve two purposes, to raise revenue or to alter behaviour, e.g. by reducing consumption. Food supplements have been sold free of VAT in Ireland since the introduction of VAT. The reason we impose consumption taxes on products like tobacco and alcohol is to deter consumption. We have succeeded in doing so. Ignoring the fact that a hard Brexit would impose a 12.8% tariff on the supplements we import from the UK, any VAT imposition on this food category would hit those who can least afford it the most.
For the remainder of his budget considerations, it is probably too late for Paschal Donohoe to tackle the major tax reforms we have urged for the last number of years.
But he can still do something useful for SMEs:
– He can modify the Key Employee Engagement Program (KEEP) which has so far failed to deliver.
– He can reduce Capital Gains Tax (CGT), which will increase exchequer yield.
– He can end, at a nominal cost to the Exchequer, the tax discrimination against the self-employed.
– He can reform the Knowledge Development Box (KDP) to make it accessible to SMEs, and to encourage high-tech, research driven SMEs to stay and scale in Ireland.
– He can raise our entrepreneurial reliefs to levels that are competitive with the UK, our soon-to-be former EU member and nearest neighbour.
– He can help raise SME productivity by encouraging participation in our proposed Basic Diploma in Business Studies for business owners (and managers) via preferential CGT or PAYE allowances.