Why a VAT reduction on repairs is not the solution

At present, no specific empirical research has been conducted on the effectiveness and efficiency of a VAT reduction on repair services. Nevertheless, the Dutch State Secretary for Finance appears to reject the parliamentary motion. "Although this may seem premature at first due to the lack of specific empirical research, we believe that the theoretical tax disadvantages of such a VAT rate reduction are significant enough to support the State Secretary's position," says Merkx. 

Limited scope and definition issues 

The limited flexibility provided by the EU VAT Directive means that the Netherlands can only introduce a reduced VAT rate for repairs of household appliances. However, whether such a narrowly defined reduced rate would be effective enough to generate a significant environmental impact is questionable. Moreover, this restriction is expected to lead to classification issues, as the term 'household appliances' is not defined in the directive. Boonstra asks: "Does this include all devices that can be used in a household? Moreover, if so, is a mobile phone considered a 'household appliance,' even though it is frequently used outside the home?" Merkx points out that such questions highlight the sometimes arbitrary classification differences in VAT legislation and regulations. She illustrates this with an example from Dutch tax law, valid until 1 January 2025, distinguishing between rabbit food and hamster food: rabbit food was taxed at 9% VAT, while hamster food was subject to a much higher 21% rate. "Such classification issues will inevitably lead to legal uncertainty and disputes, undermining the efficiency of the proposed measure," says Merkx. 

Can environmental effects even be measured? 

The researchers also highlight the challenges in measuring the environmental impact of a VAT reduction. Merkx explains: "Numerous correlating factors will likely obscure the relationship between a certain environmental effect and a VAT rate reduction. Moreover, it is unclear what exactly should be measured as the 'environmental effect,' given the classification issues and the highly diverse product characteristics that complicate assessing the environmental impact of household appliances." Additionally, existing empirical research raises doubts about the extent to which a VAT reduction results in a proportional price decrease. Boonstra elaborates: "Businesses are free to set their own prices, making it difficult to determine - without specific empirical research - whether the benefits of such a measure would actually be passed on to consumers." 

Better alternatives 

Instead of a VAT reduction, the researchers advocate for other policy measures, such as direct subsidies or compensation schemes. Initiatives like the French 'bonus réparation' and the Austrian 'Reparaturbonus' provide consumers with financial support for repairs. This approach ensures that the benefits go directly to consumers without the need for complex legal classifications. Additionally, legislation such as the European Right to Repair directive is crucial. This regulation requires manufacturers to make specific products repairable and to provide spare parts. Such measures contribute to extending product lifespans and improving environmental sustainability without the complications of VAT regulations.