Ministers consider VAT increase to close budget shortfall

The highest value-added tax (VAT) rate in the Netherlands may increase from 21% to 21.4% next year to address an impending budget shortfall, according to sources in The Hague cited by the AD.

The higher VAT rate, which was raised from 19% to 21% in 2012, applies to most goods and services except for food, cultural activities, and medicines. The proposed increase is aimed at generating an additional €1.2 billion in tax revenue to help bridge the budget gap.

In November, MPs decided against raising VAT on sports, books, and museum visits from 9% to 21% which needs to be compensated.

Ministers aim to present their plans for closing the funding gap to parliament next week but are known to be uneasy about a flat tax increase. “The choice is between a little bit on everything or a lot on a few things,” one of the sources told the paper.

Another option being considered is to simplify the system and have one rate of 17% or 18% for everything. However ministers are not keen on this option because it would lead to sharply higher prices for fruit and vegetables.

MPs from across the political spectrum, including the coalition government, said after the news broke they would not accept an increase in VAT, making it unlikely the plan will become a reality.