Sales tax, or value added tax (VAT), is a tax levied by the government on the sales of products and services. VAT is levied in 136 countries, including most countries in Europe. In the Netherlands consumers have been paying VAT since 1 January 1969. Producers and providers increase the price of a product or service with the amount of VAT, which they must subsequently transfer to the government. Although it seems as if the producers and providers pay this tax, it is in fact paid by final users. Unlike the predecessor of VAT, companies may subtract the VAT they pay on their purchases from the VAT they receive from their customers. In fact, then, they pay tax only on the value they have added to the product or services, hence the name.

There are three rates of VAT in the Netherlands. The low rate is currently 6 percent and is valid for daily necessities, but also for books, newspapers and for some labour-intensive services. The high rate is currently 19 percent and is applied to luxury goods such as cars and electronics, but also to energy. The zero rate applies to sales abroad. Some goods and services are exempt from VAT such as drugs, education, some financial services and rent.

The low rate has developed very steadily since the introduction of VAT. In 1969 it was 4 percent, it was raised to 5 percent in 1984 and to 5.25 percent in 1986. In 1987 it was increased to its present level of 6 percent.

The high rate has had more ups and downs: it started out at 12 percent in 1969 and has been 19 percent since 2001. In the intervening period it rose by a number of intermediate steps to 20 percent in 1987. This was followed by a reduction to 17.5 percent in the  period 1993 to 2000. The increase in 2001 was part of an extensive package of tax reforms.

Within Europe the high rate of VAT varies from 15 percent in Cyprus and in Luxembourg to 25 percent in Denmark and Sweden. The low rate ranges from 5 percent in nine countries to 17 in Finland. Denmark has only one rate.