Most European Tax Systems Are Skewed Against Plant-Based Milk

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. Recent political developments in Germany and elsewhere have brought the issue of this so-called “VAT Gap” to the surface once more.

For those who do not know, within the UK and European Union VAT is a Tax which 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, for example, 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 exemptions 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?

There are many reasons why people opt for plant-based milk, which makes up 11% of all milk sales in Europe.

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 ro 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% and 7.2% 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 France, 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.

Austria

VAT on plant-based milk: 20%
VAT on conventional milk: 10%

Czechia

VAT on plant-based milk: 10%
VAT on conventional milk: 10%

Germany

VAT on plant-based milk: 19%
VAT on conventional milk: 7%

Greece

VAT on plant-based milk: 24%
VAT on conventional milk: 13%

Hungary

VAT on plant-based milk: 22%
VAT on conventional milk: 5%

Italy

VAT on plant-based milk: 22%
VAT on conventional milk: 4%

Netherlands

VAT on plant-based milk: 9% (196% tax increase to take effect 1 January 2024)
VAT on conventional milk: 9%

Slovakia

VAT on plant-based milk: 20%
VAT on conventional milk: 10%

Spain

VAT on plant-based milk: 0%
VAT on conventional milk: 0%

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.