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Bakers fear effects of VAT increase on breads

The 13.5 per cent added VAT could cause small bakeries to let go of staff or close – and will also affect larger bakeries, say people in the trade.

Freshly baked bread
Freshly baked bread
Image: net_efekt

BAKERS HAVE OUTLINED their concerns about placing VAT increases on bread products – with some worrying that they may lose staff and customers.

According to the Revenue Commissioners:

The ingredient definition of bread is 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 of bread in the VATCA 2010 and do not therefore qualify for the Zero rate of VAT.

In today’s Irish Times, Conor Pope reports that Minister for Finance Michael Noonan agreed to hold off making companies introduce the VAT increase on breads while he holds more consultations.

So what of Ireland’s famous blaa, which is being considered for EU protected status?

Dermot Walsh, who runs M&D Bakery in Waterford City, said that he didn’t anticipate that the VAT would apply to Waterford’s famous bread product.

Walsh said there would be “uproar” if the blaa was taxed.

He added: “It is an exceptionally grey area – it would be a nightmare to police ”

Declan Molloy of Molloy’s Bakery in Roscommon told TheJournal.ie that he had serious concerns about the implications of a VAT increase on breads.

His company makes a large range of artisan, homemade breads – including one that takes 19 hours to make.

He said that tomatoes are used to decorate this bread, and that the inclusion of them may mean that the VAT is added onto the product, for example.

He said the only way small bakeries are surviving is by diversifying and getting away from the standard white and brown breads – his company has a range of seeded breads and breads with spelt flour.

I’m afraid these are going to fall into the category. It just means where we have worked so hard to be different from the plant bakeries so our shops will survive, we have tried to differ our offerings to the public from what the supermarkets are offering. Now we are going to be crucified.
We are going to be punished for giving customers a choice. Most small bakeries are very indigenous and labour intensive. Our breads would be marginally higher [in price] than what you would buy in supermarkets. If we have to put another 13 per cent VAT on top you might as well close all the small bakeries in the country.

Molloys is due to to celebrate 90 years in business next year and has seen four generations of the family pass through it.

Declan is now worried that his business may not last past nine decades if this VAT is brought in.

We run on a relatively tight margin as it stands and I don’t feel that we could absorb that sort of price ourselves. We’d be out of business.

He said that in recent times he has noticed that people are getting pickier when it comes to price – which he completely understands – but this adds a further worry that existing customers won’t want to pay for even pricier breads.

He has written to two local TDs and one has told him they will look into the situation.

The only way I can come out of it is I work longer and harder. My staff work hard for their money – I can’t expect them to work harder. I feel the government is penalising the likes of myself.

He is calling on concerned locals to lobby their local TDs.

We have a very loyal good customer base – we are so appreciative of that.

Ger Cunningham, of the Flour, Confectionary and Bakers Association said that the association’s president had a meeting with Finance Minister Michael Noonan yesterday and he believes they are going to review the definition of what breads should contain.

Cunnningham said the Revenue Commission is to sit down with representatives from the FCBA and discuss a redefinition of what bread is, or what it should be, within the next week.

He described the move as “detrimental” and said higher VAT rates “could push the prices up so high that they would become non-profitable and it would be pointless producing them”.

He said that margins are already decimated in the trade, especially with supermarkets also offering breads.

There is no way – the supermarket won’t accept a price increase. It would have to come out of the [baker's] profit.

But he concluded:

At the moment we are optimistic. If you said in 1972 that you were going to produce a bread with poppy seeds, they wouldn’t know what a poppy seed was – now everybody expects there will be one seed or a whole range of seeds in bread.

The Revenue said their eBrief was to clarify Revenue’s VAT treatment of bakery products and food supplements in accordance with existing national VAT legislation and the EU VAT Directive.

It said there has been no change to Irish VAT law in relation to these products and that bakery products, with the exception of bread, as defined in the VAT Consolidation Act are, and have always been, liable to VAT at the reduced rate (currently 13.5 per cent).

The need for the issue of the eBrief arose following a number of recent VAT appeal cases and applications from suppliers for zero-rating of certain products.

Read: Opposition calls on government to explain 2 per cent VAT rise report>

Read: Blaa blaa blaa: Waterford bap considered for EU protected status>

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