Blueprint tax reform
Belgium’s Finance Minister Vincent Van Peteghem has taken on the assignment to prepare for a broad reform of Belgium’s tax landscape. As a first step in completing this task, he has commissioned a study by a group of experts in the field with the aim to draft a blueprint with in it recommendations for the actual future reform.
The result of this exercise is the following matrix which we will subsequently discuss in more detail.
Important to note is that this is merely a blueprint with recommendations. No actual reform has been implemented yet with respect to the topics discussed nor is the Belgian government obligated to follow these recommendations. We have also limited the scope of this contribution to those recommendations relating to individuals. Those with more relevance to companies and business have been left out of this article.
Activity- and Replacement Income
- The basic tax-free allowance should be increased to 13.390 EUR equalling the minimum living wage applicable in Belgium. Every individual subject to income tax in Belgium should be exempt from taxation on the first 13.390 EUR of net taxable income (i.e. after deduction of social security contributions and professional expenses).
- The applicable progressive tax rates should be lowered, and a new tax bracket with a tax rate of 50% should be introduced for taxable income in the excess of 84.740 EUR, resulting in the following new brackets and rates:
- The “Special Social Security Contribution” should be abolished and this extra tax introduced in 1994 should no longer be owed by employees nor by self-employed. NB a start to implement this measure has been made through the introduction of a reduction of this contribution for lower income earners earlier this year.
- The scope of the “work bonus” (the difference in net income when working compared to receiving an unemployment allowance) should be extended: this measure intended to incentivise people to enter the workforce should be increased and the scope for the tax credit for low income should also be extended accordingly.
- Clarity for income from jobs on the side: in the future income from side jobs (i.e. from other sources than the main employment such as income from occasional work through platforms, or other side jobs) should be exempt from taxation up to a level of 6.000 EUR. All additional income exceeding this amount should be subject to progressive taxation together with the main professional income.
A more fair taxation
- Simplification of the tax return forms: the ambition is to remove 1 in 4 “codes” in the current tax return form.
- A uniform definition of salary should be introduced for both social security and tax purposes. Certain benefits (in kind) that are currently valued at a beneficial lump sum value should in future be valued at their actual and true value and be subject to social security and income alike.
- The various systems of vouchers instead of remuneration in cash (e.g. eco-vouchers), should lose their beneficial treatment for tax and social security purposes and should in future be treated in the same way as cash remuneration, with the exception for meal vouchers.
- Use of flexible remuneration plans (cafetariaplannen) and (over-the-counter) option plans to optimise salary packages should be discouraged.
- Reimbursement of expenses and payment of lump sum cost allowances should be more closely and more strictly monitored.
- Currently existing beneficial regimes aimed at supporting and encouraging creativity and talent should be re-evaluated in light of their original purpose.
- Wage tax withholding should be more aligned with the final taxation of income through tax return reporting, rather than an over-withholding through payroll and refund through tax return reporting as is currently the case.
A more modern taxation
- There should be less difference in tax position between married couples and single individuals or individuals living together without being married or without any formal form of cohabitation. The so called “marital quotient” should be abolished.
- Each child should entitle parents to an equal increase of the tax free allowances for individuals (rather than an increasing extra increase per extra child as is the case today), and single parents will receive additional support in the form of an extra increase of their tax free allowances.
- The tax benefit for costs for child care should be increased and should automatically be included in the tax return.
- Alimony payments should no longer be subject to tax in the hands of the recipient nor should they be deductible for tax purposes In the hands of the payer. Domicile (i.e. with which parent the child is registered) should no longer determine which parent is allowed to claim tax benefits for the child.
- Withholding tax on investment income (i.e. dividends, interest, royalties etc.) should be reduced to 25%, and should continue to serve as final taxation for individuals (meaning they are no longer obligated to report such income in their tax return when withholding tax has been levied and paid).
- A principal exempt amount of 6.000 EUR should be introduced for investment income for individuals.
A more fair taxation
- A capital gains tax of 15% on capital gains should be introduced and in turn other regimes such as the tax on securities accounts and tax on stock exchange transactions should be abolished. An exception to the rule of the new capital gains tax should be capital gains realised on the sale of shares in a company with preservation of the existing business and activities.
- Income from the family home should remain exempt.
- Exemptions and benefits for real estate other than the family home should be phased out.
- Real estate income should be taxed based on the actual (rental or deemed) income. Smaller investors should be protected by allowing a lump sum cost deduction of 30% and a principle exemption of the first 6.000 EUR of income.
- Gains realised on the sale of real estate other than the family home should be subject to a flat rate of 15%.
- All individuals should have access to fiscally facilitated second pillar pension accrual in addition to the first pillar legal pension accrual through the legally obligated social security contributions. The difference in tax treatment between payment of pension in capital vs. spread monthly payments should be abolished.
A more modern taxation
- Real estate owners should be encouraged to renovate their property and make it more environmentally friendly. This should be done through allowing a 30% lump sum deduction to determine the taxable income from real estate. In the event the actual investment costs for renovation would amount to more than 30% then the actual costs incurred can be claimed provided proof of their nature and amount is available.
Tax legislation should be leveraged to achieve a more healthy, environmentally and climate friendly society and economy.
- Families should be supported through the transition to a more sustainable society by means of a eco tax credit.
- Electricity and other forms of sustainable energy should be labelled as “basic needs”. VAT on electricity should be reduced. From 2030 Europe demands that gas, coal and firewood are subject to the regular VAT rate.
The rules for excise duties on energy should be reformed to allow for differentiation between basic use and excessive use.
- The reduction of the VAT rate for demolishing and rebuild of the family home should be extended.
A more faire taxation
- Fruit, vegetables, medical care and hygienic products such as diapers etc. and public transport services organised or subsidised by the government should be exempt from VAT (subject to a VAT rate of 0%).
- A CO2-levy should be gradually introduced for all domains which currently do not resort under the European Emissions Trade System.
A more modern taxation
- The existing exemption for a cycling allowance for commuting by bicycle and the reduced VAT rate for “bike-sharing” should be extended. Employers should be offered support to invest in bicycle infrastructure for their employees.
- Company fleets should become zero-emitting. Electric company cars should be encouraged and taxed more favourably than cars with a combustion engine. Also, petrol/charging cards financed by employers should be taxed at actual value.
As mentioned previously, this blueprint contains a framework with a recommended approach to substantially reform the current Belgian tax system. None of these recommendations have been implemented yet.
Should you however wish to discuss this further then do not hesitate to contact the contributors of this piece: