Value added tax was introduced in the Netherlands in 1969. In that year it generated just over 2.5 billion euro in revenue; nearly 40 years later VAT revenue amounted to nearly 43 billion euro. Since 1997, VAT has generated more revenue than wage tax, and is thus the most important tax for central government.
Nearly 43 billion euro in VAT
Value added tax (VAT) has been levied in the Netherlands since 1 January 1969. The revenue from VAT has risen from 2.5 billion euro in 1969 to 42.9 billion euro in 2007. In 1989, 1992 and 1994 VAT revenue decreased. The high rate of VAT was gradually reduced from 20 percent in 1988 to 17.5 percent at the end of 1992. The last change in the high rate came into effect on 1 January 2001, when it was raised to 19 percent, pushing up revenue substantially in 2001. The increase also resulted in an increase in inflation of 0.5 of a percent point in 2001.
Changes in the rate of VAT may result in increases or decreases in VAT revenue. In the long term, however, the development of the economy and inflation determine the amount generated. In the last 40 years annual revenue has fluctuated around 6.5 percent of GDP. Since the turn of the century it has been above 7 percent.
Percentage of VAT in central government tax revenue
VAT is main government tax
VAT accounted for nearly 32 percent of central government’s total tax income in 2007. The revenue from this indirect tax is thus larger than that generated by wage tax (29 percent), corporate tax (14 percent) and excise duties (8 percent). Until 1997, wage tax generated the most revenue for central government.
Distribution of VAT payments
Not all VAT paid by households
Households account for more than half of VAT, paying it when they purchase goods and services. In addition, VAT paid by home-buyers accounts for another 12 percent. Companies, institutions and the government pay 19 percent of VAT. Investment by government and institutions which are exempt from VAT generated just over 12 percent.
Bram de Boo