The reduced VAT rate in the Netherlands will be increased from 6% to 9% with effect from 1 January 2019. And that will cost a Dutch household an average of €300 a year, according to the ING calculated.
The price increase will be passed on
VAT is a tax levied on the consumption of goods and services. Any increase in the rate is therefore passed on in prices. Of course, the extent to which an increase in the VAT rate is actually passed on depends on the economic situation. Research by ING shows that the VAT increase results in prices being raised.
So, to a certain extent, you can control for yourself how much the increase in the reduced VAT rate affects you. The less you consume, the less you’ll be affected. You can do this by buying fewer products and services, but also by shopping more cheaply. Of course, you can avoid the rate increase by making your purchases before the end of 2018. We set out the transitional rules in our note ‘Increase in the reduced VAT rate (6% becomes 9%)’.
Reduced VAT rate
But to which goods and services does the reduced rate apply? The main category concerns our everyday food and drink. With the exception of alcoholic drinks, which are subject to the standard VAT rate (21%). You also pay VAT at the reduced rate when eating or drinking in restaurants and bars. In addition, all products intended for the preparation of food are subject to the reduced rate.
Furthermore, the reduced VAT rate is applied to services provided in the medical environment. This includes medicines and all sorts of medical aids. However, these costs are often largely covered by the (health) insurer.
And in the cultural atmosphere The reduced VAT rate is applicable here. This applies to works of art, insofar as they are imported (from outside the European Union) or supplied by the artist (or their heirs). In addition, books are subject to the reduced rate, although it has not yet been possible to bring digital books under the reduced rate. Admission to circuses, zoos, museums, and music and theatre performances is also subject to the reduced VAT rate.
Also sport and leisure is subject to the reduced VAT rate. This covers the provision of facilities for sporting activities and swimming, as well as passenger transport, camping facilities and the provision of accommodation.
And finally, the following so-called labour-intensive services subject to the reduced VAT rate:
- bicycle repairs;
- repairing footwear and leather goods;
- repairing clothes and household linen;
- the hairdresser;
- painting and plastering of homes more than two years old.
Shift in taxation
The prospect of higher living costs due to the increase in the VAT rate sounds worrying. But at the same time, the Government is reducing income tax on earned income. On balance, households will be better off. You’ll have more of your gross income left over after tax. And with that higher net income, you’ll then be able to afford the price increases resulting from the higher VAT rate.
Incidentally, the measures have yet to be incorporated into legislation. They will all form part of the tax plans that the Rutte III government is due to announce on 18 September (Prinsjesdag).