VAT disparity: levelling the playing field for plant-based milk in Europe
In certain European countries, plant-based milk faces significantly higher value added tax (VAT) than conventional cow’s milk, but new proposals offer a chance to level the playing field.
12 December 2023
In certain European countries, plant-based milk faces significantly higher value added tax (VAT) than conventional cow’s milk, but new proposals offer a chance to level the playing field. This is perhaps surprising given it has a significantly smaller environmental footprint, and can be an option for those with an intolerance or allergy.
This so-called ‘VAT gap’ was the subject of a report by ProVeg in 2019, and recent political developments in Germany and elsewhere have brought the issue to the surface once more. Here, we take a deep dive into the lay of the land across Europe to see where these disparities are, and what is being done to put sustainable options on a level playing field.
What is VAT?
VAT is added to the price of most consumer goods and services. In many countries, the government may apply a lower rate or exemption from VAT on products it wants to incentivise the purchase of, making them cheaper for consumers to buy.
In Germany most products carry a standard VAT rate of 19%, but certain ‘public good’ items have a lower rate of 7%. This lower rate is applied to items including books, water, medical care, theatre tickets and staple foods.
VAT rates, reductions and exemptions vary a lot by country, but in the EU standard rates must be at least 15%, and (with certain specific exceptions where 0% is permitted) reduced rates must be at least 5%.
Why does VAT differ between plant-based milk and cow’s milk?
Each country levies its own VAT and determines which items carry higher or lower rates. In most European countries, including all but a handful of the EU27, plant-based milk is taxed at the same rate as cow’s milk as they are both considered staple foods.
However, in some countries, VAT is considerably higher on plant-based milk. The exact reasons for these differences vary, but they usually result from the way in which plant-based milk and cow’s milk are categorised. In Germany for instance, cow’s milk is considered a ‘staple’, while plant-based milk is considered simply a ‘drink’, even though they play the same role for a consumer. As these categories are used to define the items falling under different VAT rates, they can lead to discrepancies.
Why is this important?
Plant-based milk has significant advantages over conventional milk in terms of land use, greenhouse gas emissions, water use and nitrogen pollution. It is estimated that dairy accounts for 25-30% of the carbon footprint of the average European’s diet. Conventional milk is also a major contributor to biodiversity loss.
In addition to this, many people cannot properly digest conventional milk, which can lead to intolerance and gut problems. Known as lactose malabsorption, this is estimated to affect 26% of people in northern, southern and western Europe, and 47% of those in eastern Europe, Russia and former Soviet republics. Cow’s milk is also the most common childhood food allergy, affecting between 2% – 7.5% of infants and young children.
Finally, because plant-based milk is far more efficient to produce than cow’s milk, and relies on a far shorter supply chain, it is less exposed to supply shocks and inflation. This means it can play an important role in boosting food security and providing companies and consumers with more stability. These advantages are undermined by artificial price increases caused by VAT disparity.
Consumers buying plant-based milk usually use in the same way as cow’s milk. If one is a staple food, then so is the other. A preferential VAT rate on conventional milk but not plant-based milk penalises consumers making more sustainable choices and unfairly increases costs for those with intolerances and allergies.
Which countries apply higher VAT for plant-based milk?
Countries with a VAT gap are the exception, not the rule in Europe. Most countries, including Belgium, Finland, France, Ireland, Portugal and the UK, apply the same VAT rate to both plant-based and conventional milk. However, in several European countries, VAT rates discriminate against plant-based milk – some major examples of which are outlined below.
VAT on plant-based milk: 20%
VAT on conventional milk: 10%
Like Germany, Austria places a significantly higher VAT rate on plant-based milk compared to cow’s milk. Calls to remove this disparity have emerged recently from several sources, including the Vegane Gesellschaft Österreich, and large retailer REWE.
VAT on plant-based milk: 10%
VAT on conventional milk: 10%
A great example of a success story in this space, Czechia closed the VAT gap that had existed between plant-based and conventional milk in mid-2023.
VAT on plant-based milk: 19%
VAT on conventional milk: 7%
Germany is the largest market in Europe for plant-based milk, with sales totalling over 500 million euros in 2022. Nevertheless, it has one of the largest discrepancies between plant-based and conventional VAT rates in Europe, behind only Italy and Hungary.
At the end of August 2023, MPs from the SPD and Green parties issued calls for the VAT rate to be equalised on plant-based milk. The key question now is whether this initiative will be implemented by the governing coalition as part of the deliberations on the Annual Tax Act 2024.
VAT on plant-based milk: 27%
VAT on conventional milk: 5%
With the cost of living high on the agenda in Hungary, some commentators have been calling for legislators to follow Germany’s lead in seeking to reduce VAT on healthy and sustainable foods.
VAT on plant-based milk: 22%
VAT on conventional milk: 4%
Italy has one of the highest rates of dairy intolerance in Europe, estimated to affect around half of the population. Yet it also has the highest VAT gap between plant-based and conventional milk – with the plant-based rate 4.5 times higher.
VAT on plant-based milk: 9% (196% tax increase to take effect 1 January 2024)
VAT on conventional milk: 9%
While countries like Germany are trying to fix this problem, new legislation in the Netherlands is set to introduce a new consumption tax that will unfairly penalise plant-based milk. VAT is currently the same for plant-based and cow’s milk for Dutch consumers, but an oversight in new legislation intended to target fizzy drinks will lead to dramatic increases in tax paid on all plant-based milk except soy milk from 2024.
These plans have prompted criticism from many, and some groups have begun to campaign against the inclusion of plant-based milk. The rationale behind the new tax is to discourage unhealthy food choices and will apply to most non-alcoholic drinks. Cow’s milk has been granted an exception as it is considered a healthy food, but this has not been extended to the plant-based milk category. Particularly controversially, conventional milk products high in fat and sugar such as milkshakes will remain exempt while many fortified, low-sugar plant milks with high nutritional value will still receive the full rate.
UPDATE: In late December 2023, the Dutch Senate voted to exempt all plant-based milks from the new tax, prompting a commitment from the state secretary to develop an amendment in the first quarter of 2024 to exempt all plant-based milk from the new tax, and put it on par with conventional milk. The next step will be a review of the motion by the cabinet.
VAT on plant-based milk: 20%
VAT on conventional milk: 10%
Slovakia is home to a burgeoning plant-based market, and plant-based milk is purchased by 34% of households according to a survey in 2022 (full report in Slovak available here). To try and level the playing field for those choosing plant-based dairy, Jem pre Zem, an organisation working to promote sustainable food systems in Slovakia, recently launched a petition calling on the government to reduce VAT on plant-based milk to match cow’s milk.
VAT on plant-based milk: 0%
VAT on conventional milk: 0%
Until recently, plant-based milk in Spain was subject to 10% VAT, more than double the 4% applied to conventional milk. However, this disadvantage was removed at the start of 2023 as part of a broader package seeking to tackle rising food prices, which scrapped VAT on essential foods including both plant-based and conventional milk.
However, this VAT cut was intended only as a temporary measure to ease inflation, and while it was extended in June 2023 it remains to be seen whether the discrepancy will be re-introduced. Research commissioned by ProVeg found that over 90% of Spanish people disagreed with different VAT rates for plant-based and conventional milk.
What is next for VAT on plant-based milk?
Plant-based milk is a staple grocery item for millions of people in Europe. There are many reasons consumers make this choice, such as lactose intolerance or allergy, sustainability, biodiversity, health, or simply because they prefer it. In most of Europe, VAT codes recognise the importance of including plant-based milk in the same bracket as conventional milk, but there are still several outliers. Surprisingly, some of these nations are those at the forefront of protein diversification such as Germany and the Netherlands, where consumers must pay more to choose the plant-based option.
Closing the VAT gap is a simple step to reduce an unfair disadvantage being applied to a group of products with an important role to play in the future of our food system.
Correction 28 Dec 2023: Greece was removed from this article following an update that equal VAT is now applied to plant-based milk and conventional milk in the country.