5 January 2015

The IMF has reported on the Dutch tax system, and identified high individual marginal tax rates as a problem suppressing the labour market. To allow a reduction in direct tax rates, the IMF suggests combining the standard (21%) and reduced (6%) rates of VAT. This is a significant change within the EU, and would change the bias of taxation significantly. To counter the most regressive effects, the IMF suggests reducing the lowest rates of direct tax and introducing other targeted measures.
Out of the 28 Member States of the EU only Denmark has a single rate at present. Some countries have more than one reduced rate and some have a super-reduced rate and a parking rate too. A few countries have recently considered combining VAT rates into one, but in general such proposals have been rejected. Indeed, having initially considered a combined rate of 17.5% the Czech Republic has decided to move in the opposite direction with a new reduced rate of 10% added to the existing rates of 21% and 15% from 1 January 2015.