The Rutte government is defending the VAT increase on admission tickets to theatres and concerts, claiming that it will straighten out an exemption for the arts. However, this does not appear to be true, according to a response from the Association of Tax Advisers to the proposal.
"The Bar Association also points out that the explanatory memorandum notes that the performing arts are currently subject to an exception. However, this is not a correct observation: after all, the reduced rate currently applies to many forms of leisure activities, such as cinema attendance, sports competitions and sports demonstrations, amusement parks, playgrounds and other facilities and acquaintances set up for entertainment and daytime recreation. For all these forms of entertainment, the reduced rate will remain in place. On the contrary, after the VAT rate increase, the performing arts will be in an exceptional position, as it will be one of the few entertainment options in the increased rate. If a family has to make the choice to go to children's theatre show or the funfair, to go to an André Rieu performance or an amusement park, to go to the musical Ciske the Rat or to go to the film Ciske the Rat, to go to a live opera performance or to a cinema-broadcast opera performance, the increase in the performing arts rate will put the performing arts at a competitive disadvantage. The measure therefore makes it more difficult for the performing arts to operate in a competitive market, as commercial operators offering alternative entertainment do benefit from the reduced rate. This requires further explanation."
Tax consultants point out that the VAT reduction for leisure and culture was introduced in 1998 to compensate institutions for higher costs due to the Working Hours Act. So that reduction was never meant to make admission tickets cheaper. The increase in VAT does get passed on to spectators. Further, the measure is going to cost a lot of money and time in taxation, the Tax Advisors announced:
"A musical performance often takes place during halftime of a sports match. Does this mean that the price of admission to the sporting event should be split into a price for the sporting match (reduced rate) and for the performance (increased rate)? How much sports match must there be for the performance to be included in the reduced rate of the sports match?
The same applies to musicals performed in amusement parks that do not charge a separate entrance fee and, for example, haunted houses at fairs, which use actors to enliven the ride through the haunted house. The question may also arise as to where the line is drawn between gymnastic exercises to music, ballroom dancing and figure skating to music on the one hand and ballet performances, musicals and holiday on ice on the other."
Anyone who has ever filled out a tax return understands where the shoe pinches. But it gets even more fun:
"Must there be an award ceremony for there to be a sports competition? This does not seem to be the case, as sports demonstrations (i.e. apparently without a competition character) are also covered by the reduced rate. Does it have to take place in a sports hall? Does this mean that a performance by the local folk dance group or ballet school at the cultural centre is taxed at the 19% rate, while a demonstration by the majorettes and gymnastics club at the local sports hall is taxed at the reduced rate? The audience of both events will be similar and - contrary to the assumption made in the explanatory memorandum of the bill - will not primarily consist of persons from the higher income brackets. Moreover, this raises the question of whether a music competition or theatre sport, which also involves competition for a prize, can then qualify as a sports competition and thus be attended at the reduced rate. In short, the expiry of the applicability of the reduced rate raises a host of questions."
And to those questions, we expect answers at some point.
The entire beel tax advisers' piece is available for download here: Comments notes of amendment BP 2011
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Thanks for the responses! It turns out to be a more complex arithmetic than I briefly thought to do on Saturday afternoon.... Meanwhile, the cabinet has left the decision to the PVV. And the increase is going ahead.
According to a study by agency Berenschot, the cultural sector represents a value of €70 billion by boosting the hospitality, tourism, support and creative industries. To me, this amount seems extremely high, but even if you assume that only part of that turnover is actually generated by the cultural sector, the investment the government is making in arts/culture still seems justified to me, and cuts in this sector, especially in the current economic climate, very unwise.
Also, during the Paradiso debate (last August), Bureau Berenschot argued that cuts in the cultural sector will very quickly cause cultural institutions to topple, as their financial position has already been eroded by previous cuts. When you think about VAT revenues but also income tax, and unemployment costs for all those people at risk of becoming unemployed in the cultural and related sectors, it seems plausible to me that these austerity measures will end up costing the treasury a lot more money than they bring in.
http://www.berenschot.nl/algemeen/overige_items/nieuws/nieuws/nieuws_2010/presentatie_en/
Indeed, declining visitor numbers were not taken into account in Weekers' (VVD) calculation. However, this will happen. On average, the price elasticity in the performing arts is a factor of 0.6 (APE-Rotterdam). This means that for a price increase of 12.2 % (actual increase with this increased VAT), there is a drop in sales numbers of 7.3%.
However, according to APE, this percentage will be higher when purchasing power falls, which is still expected in the coming years. This will soon bring the decline to at least 10%.
Added to this is the fact that a large part of the subsidised supply is indeed in danger of disappearing because of the huge cuts on that side. Proportionally, more people go to these 'high arts' than to commercial performances, so even there a large drop-out of spectators can be expected.
The estimated revenue of 90 million is thus highly unrealistic.
Almost, sorry to say, a lie.
@ Berend on secondary income, you are absolutely right. The total 17 million stage-goers spend 92 million a year in hospitality alone.
Thank you Miriam! Had a hunch...was a lot though.
But I do remain of the opinion that people are making a mistake with these cuts. Then consider parking fees, public transport revenue, hospitality etc.
What Dikkers probably means is that it assumes 700 mln 'turnover' in the cultural sector. 90 mln is about 13% of 700 mln. The current revenue from VAT is then, as Miriam says, 42.5 mln at a rate of 6% and will be 131.5 mln at 19%.
But for the government to really start making a loss, despite the VAT increase, the entire revenue has to fall to around 220 mln. So that's 480 mln less turnover. That is unlikely even with so many cuts. After all, this is a dilution of the rate.
The interesting thing about Dikkers comment is that the 90 mln the government thinks it will bring in on the VAT increase is highly questionable. The government's calculations apparently assume that supply and visitor numbers will remain the same. How much this will lag behind remains speculation. But that it will be less than that 90 mln seems very likely indeed.
If with 13 percentage point increase 90 million more tax is raised, the government expects to raise a total of (90/13)*19 = 131.5 million. So at a 6% rate, that would be 131.5 - 90 = 42.5 million, not 700.
Very funny! By the way, I wonder whether the calculations are really correct: with the VAT increase of 13%, they want to raise an extra 90 million. That means that there is already some 700 million in VAT revenue from ticket sales, which is about the entire amount invested in performing arts subsidies... (700 x 13% is 91) But whether those revenues will be achieved: because the 13% will be passed on, the expectation is that visitor numbers will drop. If a further 200 million is cut plus the cuts from the municipalities, at least 40% of the current offer will disappear. That is 280 million less VAT revenue.
Besides: that 200 million subsidy to be cut was normally converted in part into wage costs, on which wage tax and contributions were paid. This revenue, too, will then lapse
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