Dairy-free drinks found themselves the subject of unexpected scrutiny this week, amid fears that milk alternatives are set to become more expensive from January because of new tax rules.
Speculation mounted that plant-based milk alternatives – which are currently not subject to Value Added Tax – are set to be taxed at the standard rate of 23% from 2025 when new measures contained in the Finance Bill kick in.
On Tuesday, Social Democrats TD Jennifer Whitmore branded the proposal “absolutely ridiculous” and pointed out that dairy alternatives would be key to meeting climate emission targets (because making them isn’t as carbon intensive as producing dairy).
Evaluation
The Department of Finance says that the VAT rate on milk alternatives is currently 0% and will remain so despite proposals in the Finance Bill.
The proposed change is so that milk alternatives, which have become more commonplace in recent years, are given legal recognition under Irish tax laws.
The facts
The outcry over oat milk stems from Section 87 of this year’s Finance Bill (the piece of legislation that gives effect to some of the measures contained in Budget 2025).
That section proposes to amend the wording contained in Schedule 2 of the Value-Added Tax Consolidation Act 2010 (VATCA 2010), which is the legislation that defines what is subject to VAT in Ireland.
The relevant wording in Schedule 2 of the VAT legislation – or, to be more precise, in Schedule 2, Part 2, section 8(1), Table 1, Part E, column (1), item (a) – is part of a section that defines certain food and drink products.
The current wording (which the Finance Bill will amend) refers to “drinking water, juice extracted from, and other drinkable products derived from, fruit or vegetables” and other products used in the preparation of beverages like powders and essences.
The new wording would expand on that definition, so that the term “fruit or vegetables” is replaced with “fruit, vegetables, plants, grains, seeds, or pulses”.
Milk substitutes tend to be made from products that fall under that new definition, like oats (technically a seed), coconuts (which are drupes, so also technically seeds), almonds (also a drupe, so also a seed) and soybeans (a bean).
Until now, the Government has not charged any VAT on milk alternatives; Revenue says this is because such products are “treated similarly to milk” (which is also not subject to VAT).
But the proposal contained in the Finance Bill to widen VAT laws so they include a definition of drinks derived from “plants, grains, seeds, or pulses” has led to worries that this will no longer be the case when the bill becomes law on 1 January 2025.
However, those worries have abated.
The Department of Finance, which prepares the Finance Bill every year, said the new measure will have no effect on milk alternatives.
Specifically, the department said that the proposed change to the wording in VAT law will “not result in any change in policy” and that milk alternatives “will remain” subject to a 0% VAT rate.
The Finance Bill’s proposal to update the wording of VAT laws is to acknowledge the existence of the range of milk alternatives that are now available to buy.
Drinks are usually subject to the standard 23% rate of VAT, but the legislation that governs how VAT rates are applicable to beverages is quite complex, and there are a number of exceptions.
Tea and coffee in non-drinkable form (such as tea bags and coffee granules) are among those exceptions and are rated at 0%, while hot drinks are another exception and are subject to a reduced rate.
Dairy milk is another such exception: as mentioned above, it is not subject to VAT and is rated at 0%.
When milk alternatives became more commonplace in the past few years, Revenue received queries about how they should be taxed.
Their inclusion in VAT legislation essentially gives the tax status of dairy alternatives a legal standing, and Revenue has said it will continue to let milk alternatives be taxed at 0%, in line with the exemption on dairy milk.
This is the only thing that will change under the current Finance Bill.
In theory, there is nothing stopping the Government from increasing VAT on milk or milk alternatives in the future, but contrary to initial fears, the price of an oat flat white won’t automatically go up from New Year’s Day.
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