The Netherlands will not be following their neighbouring countries, Belgium and Germany in granting VAT rate cuts to stimulate the economy against the pandemic. VAT Cuts in the Netherlands are not possible because the supporting automation systems at the tax authority cannot handle it.
Tax Adjustment too large for Tax Authority system
State Secretary of Finance Hans Vijlbrief explained if the Netherlands reduces the high VAT rate by 3 percentage points (from 21% to 18%) and the low VAT rate by 2 percentage points (from 9% to 7%) from July until the end of 2020, this would be approximately € 4.6 billion in costs. However, the tax authorities cannot deal with such an adjustment.
“Current IT support can contain a maximum of three rates: the applicable rate combination and the two previous rate combinations. A rate combination must remain available in the system for up to 10 years after its validity. As a result, it will not be possible to adjust the general or reduced sales tax rate in the short term,” said Vijlbrief. Vijlbrief was replying to parliamentary questions by MP Van Otterloo this week.
Are VAT Rate Cuts an Adequate Crisis Response?
When asked by MP Van Otterloo whether Vijlbrief acknowledges that it’s “very painful” that the Netherlands has to conclude that an adequate crisis response in accordance with their neighbouring countries is not possible due to technology and implementation problems, Vijlbrief responded by saying: “The main question is what is an adequate crisis response in the current circumstances. The government has weighed this up and has come to the conclusion that a VAT reduction is not the most effective and efficient option.”
No VAT Discounts in the Netherlands
The government confirmed that it does not want to grant any discount on 2020 VAT payments for companies after the end of the (financial) year 2020 because by then it will be too late and is a cumbersome and expensive process.
Vijlbrief said: “Companies need support at the moment. A discount on VAT payments after the end of 2020 is too late. The cabinet has taken measures that directly benefit companies. In addition, a discount on the VAT payment is a cumbersome way to support companies, which entails substantial implementation aspects. In addition, the VAT has been paid in accordance with the objective by the consumer to the entrepreneur, who in that respect is only a ‘conduit’. A discount on the VAT payment by the entrepreneur without this benefiting the consumer conflicts with the nature and rules of the VAT levy. A retroactive discount has many similarities with a rate reduction, with the difference that the discount or rate reduction does not benefit the consumer.”