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VAT / Excise Duties, Carbon Taxes and the Environment

VAT on Food Supplements

The main new measure outlined in the Finance Bill 2019 is the application of the 13.5% VAT rate to food supplements used for human oral consumption. There had been a long standing concession in place applying the zero rate of VAT to certain vitamin, mineral, and fish oil products. Following a public consultation process ran earlier this year, together with consultation between Revenue and other industry bodies, the VAT rate applying to such food supplements has been given a legislative basis at the reduced rate of 13.5%.

Certain products will continue to benefit from the VAT zero-rate. These products include:

• Defined categories of food that are essential for vulnerable groups of the population, such as infant formula, baby food, food for special medical purposes and total diet replacement for weight control.
• Fortified foods that are enriched with vitamins and/or minerals such as fortified cereals or yogurts.

This will apply with effect from 1 January 2020.

VAT recovery – Passenger vehicles

The Finance Bill also legislates for the change announced on Budget Day to the limited VAT deductibility (20%) on the hire/purchase of certain qualifying passenger vehicles. The CO2 emission threshold to avail of this deduction will drop to below 140g/km (previously 156g/km) for all vehicles registered on or after 1 January 2021.

Excise Duties, Carbon Taxes and the Environment

The Finance Bill confirms the various measures announced on Budget Day, most notably:

• 50c increase on a pack of 20 cigarettes 
• The €6 per tonne increase on Mineral Oils, have already taken effect on those used for auto fuels, and to take effect in respect of non-auto fuels and vehicle gas from 1 May 2020
• The enhancement to the Diesel Rebate Scheme 
• The increase in the Electricity Tax rate for businesses from €0.50 to €1 per megawatt hour 
• Amendments to the VRT legislation, must notably for a new Nitrogen Oxide (NOx) charge to be applied to passenger cars with effect from 1 January 2020. This charge will be capped at a maximum level of €4,850 for diesel vehicles and €600 for all other vehicles.

Another key environmental feature within the Budget referred to the new regime to apply in respect of Benefit-in-Kind (‘BIK’) on vehicles provided to employees by their employers. These changes implement a new ‘greener’ focus within the BIK regime, the key elements of which are as follows:

• The 0% rate of BIK on wholly electric vehicles have been extended to the end of 2022. 
• With effect from 1 January 2023, there will be a new regime to determine the charge to BIK on vehicle, replacing the existing system where the relevant percentage to apply to the Original Market Value is linked solely to level of business kilometres travelled. The revised regime will now introduce two elements to determine the appropriate percentage to apply in determining the taxable benefit for BIK purposes: 
  • Firstly, vehicles will be categorised by CO2 emissions into 5 categories, ranging from ‘A’ being up to 59g/km to ‘E’ being 197g/km or higher. 
  • Once categorised, the rate of BIK applied to the vehicle will then be determined depending on the level of business kilometres subject to 4 ranges from 0km per year to over 52,000km per year. 
• The revised percentages to be applied will be within the range of 9% to 37.5%, representing an overall increase on the current lower and higher rates of 6% and 30%. The changes will have the largest impact on employees within the lower end of business use with higher emission levels. The current highest rate of 30% will not be exceeded under the new regime once the vehicle is within the revised lower CO2 emissions categories of 139g/km or lower, clearly incentivising a move to more environmental friendly vehicles. 
• The current BIK rate applying to the private use of vans/commercial vehicles of 5% will also increase to 8% with effect from 1 January 2023.

Return to Budget 2020 Analysis.

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