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Sifting through the Tax Shift

AmCham Belgium welcomes the tax shift, the details of which were announced by the government on October 10. It contains a number of measures in line with the Chamber’s recommendations to shift Belgium's economy into high gear.

The tax shift is a fitting capstone for the Michel Government’s first year in office. It is, without a doubt, one of the most significant fiscal reforms the country has seen since the 1950s. By meaningfully reducing the cost of labor, the government aims to spur job creation and boost the economy.

The broad outline of the tax shift was already agreed to this past summer with the aim to simplify and decrease employers’ social security contributions. By 2018, the basic rate will be reduced to 25% from around 33% today for gross salaries above €3,000, and the rules will be simplified so that there are only discounts for salaries below that amount. These and other previously agreed measures should give a noticeable boost to the industrial sectors which rely on low wage and (night-) shift workers.

Furthermore, the current 1% discount on the salary withholding tax will disappear; instead, the implementation of the higher withholding tax (up to 27%) will be advanced to January 1, 2016.

The estimated €7.2 billion in ‘lost’ government revenue resulting from this tax shift is to be compensated for by new taxes on diesel, electricity (not a new tax per se, but a return to the previous 21% VAT rate), alcohol, cigarettes, sugary drinks and stock market speculation. Here, as always, the devil is in the details.

Don’t say it’s for our health

A new tax on soft drinks – 3 cents on liter bottles and 1 cent on 33cl cans of soda – is being sold as a ‘health tax’. It is expected to bring in €50 million. However, this so-called ‘sugar tax’ will also apply to sugar-free alternatives, and public health experts say it is too small to have an affect on consumer behavior. Industry associations have also expressed their skepticism and are calling for a consultation. Addressing this criticism, Health Minister Maggie De Block, who is still waiting for the results of a public health study, admitted last week that the tax shift arrived faster than expected. While we appreciate the speed with which the government is moving, it must also be careful not to act hastily.

A speculative tax on speculation

The same could be said for the new 33% speculation tax. The measure is estimated to raise €34 million by taxing any gains on shares that are sold within the first six months of being purchased. Many, both within the coalition and outside it, are concerned about whether the measure will actually be workable in practice and question whether it could turn out to be self-defeating. It could undermine entrepreneurship since investors might be less willing to invest in riskier stocks. At a more fundamental level, there are concerns raised about whether the cost to implement such a measure will justify the amount of new revenue it will effectively generate. Finally, it remains unclear how the speculation tax will apply to compensation packages (which may include stock options, warrants, etc.) or to derivative products (futures, convertible bonds, turbos, sprinters, etc.).

The Federal Parliament will debate and vote on the tax shift package in the coming weeks. Belgium has long been advised by bodies like the European Commission and the OECD to do something about its high labor costs, and the tax shift is an important achievement in this regard. But other countries are not sitting still. Against this moving target, the Michel Government must keep pushing forward with its jobs and competitiveness agenda.

Photo credit: flickr / petergorges

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