Evaluation of VAT exemptions

Dialogic, together with SEO Economic Research, has conducted the periodic evaluation of VAT exemptions. This evaluation specifically focused on three optional exemptions (services of funeral directors, writers, journalists, and composers as well as speeches and similar activities) and the fundraising exemption (a mandatory exemption to implement). The evaluation had four main objectives: (1) Providing insights into the effectiveness and efficiency of the optional exemptions; (2) Answering questions in the assessment framework for fiscal regulations for optional exemptions; (3) Providing insights into the consequences of abolishing optional exemptions and alternative measures; and (4) Providing insights into the effectiveness and efficiency of the turnover thresholds within the exemption for fundraising activities. The effectiveness and efficiency vary per exempted group and have been addressed separately in the report. Below we present a brief overview of the achievement, effectiveness, and efficiency per exemption. **Funeral Directors** The VAT exemption for funeral directors serves two objectives: no VAT on grief and improved affordability of services. The research concludes a high efficiency for both objectives, but also signals of incorrect use. The degree of efficiency varies per aspect, with average administrative burdens, high implementation costs, and unspecified economic benefits. *Recommendation:* We see no reason for abolition, but recommend reviewing whether the current implementation and delineation of the exemption still meet current societal needs. **Writers and Journalists** This exemption has two objectives: improving affordability of news provision and reducing administrative burdens. The report concludes a high level of achievement but also notes signs of incorrect use. The effectiveness of 'improved affordability' is average because this group has both buyers who can and cannot deduct VAT on purchases. The effectiveness of administrative burdens is high for writers and average for journalists. Efficiency in administrative burdens is high for writers and average for journalists. The efficiency in implementation costs is high, and the economic returns of this exemption are unspecified. *Recommendation:* We see no immediate reason for abolition, as this exemption is on average to highly effective and has relatively lower implementation costs. If abolition is chosen, placing it under the reduced rate could maintain some price reduction effect but retains issues concerning delineation and administrative burdens. **Composers** The purpose of this exemption is twofold: improving affordability of news provision and reducing administrative burdens. The research concludes a high level of achievement but also notes signs of incorrect use. The effectiveness of the 'improved affordability' goal is low, as buyers are mainly subject to VAT and procurement costs are low. The effectiveness of 'reduced administrative burdens' is low due to the mix of VAT taxable and exempt activities. The efficiency of these exemptions is low in terms of administrative burdens, high in terms of implementation costs, and low in terms of economic benefits. *Recommendation:* We see a reason to abolish the exemption, given the low effectiveness, complexity in applying deductions, and unclear link between composing music and news provision. We see no reason to introduce the reduced rate. **Journalistic Cartoonists** The purpose of this exemption is twofold: improving affordability of news provision and reducing administrative burdens. The research concludes that the achievement level is low, the exemption is optional and appears to be used very limitedly. The effectiveness of both objectives is low due to limited use. Efficiency is low in terms of administrative burdens and economic benefits, and high in implementation costs. *Recommendation:* We see a strong reason to abolish the exemption for cartoonists, considering the low achievement level and effectiveness. We see no reason to introduce the reduced rate. **Speeches and Similar Services** The purpose of this exemption is to promote science and general education. The research concludes that this exemption has a low level of achievement, and there are strong indications that the exemption is used very sparingly. The effectiveness is low due to limited use, and the efficiency is also low. *Recommendation:* We see a strong reason to abolish the exemption for speeches and similar services, as there is no documented achievement nor expected achievement, with alternatives available such as an existing reduced rate for lectures and the KOR. **Turnover Thresholds for Fundraising Activities** The purpose of this exemption is to prevent involvement in VAT for minor ancillary activities. The achievement level of the turnover thresholds is high. The effectiveness is also high, as businesses that exceed the turnover thresholds are generally larger businesses that either have some level of administrative skills or benefit from it in terms of deduction rights. Unfair competition by associations does not seem to play a significant role. Efficiency in administrative burdens is average, efficiency in implementation costs is high. *Recommendation:* We see no reason to adjust the turnover thresholds. The majority of institutions fall below the threshold, partly due to the canteen arrangement. The report has been submitted to the Dutch Parliament. Download the relevant parliamentary letter here.