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THE TAX SYSTEM IN BELGIUM COMPARED TO OTHER OECD COUNTRIES TOWARDS A WELL-BALANCED
FUNDAMENTAL TAX REFORM IN BELGIUM
Bert Brys, Ph.D. 14 October 2013 Senior Tax Economist Centre for Tax Policy and Administration
• Strengthen competitiveness of businesses & create a more attractive business & investment climate
• Stimulate economic growth – innovation – FDI
• Reduce debt level, at least as a % of GDP
• Increase government efficiency
• Ageing society and related costs: what are the financing needs today and in the future?
• Labour market activation & increased participation
• Do workers have the right skills?
• Coherence between federal and regional policies
Belgium faces many challenges…..
• Trapped in a “high-rate-narrow-base” (un)equilibrium
• Need for rebalancing the tax mix in ways which are the least harmful for economic growth
• “Inclusive and sustainable” economic growth
• Look beyond the short-run
• Tackle “problems” at source wherever possible
• Who pays the tax is not necessarily the person who bears the tax
• Need for policy coherence
…which require a fundamental tax reform
4
Belgium raises a lot of taxes Tax-to-GDP ratio (2010)
0
5
10
15
20
25
30
35
40
45
50
1100 Personal income tax 1200 Corporate income tax2000+3000 Social security contributions and payrolltaxes 4000 Taxes on property5000 Taxes on goods and services Other¹
1. Other includies unallocable taxes on income and gains and custom duties paid to the EU where applicable
Regional immovable property tax reform: property tax revenue as a % of GDP in 2010
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Other 4400 Taxes on financial and capital transactions4300 Estate, inheritance and gift taxes 4200 Recurrent taxes on net wealth4100 Recurrent taxes on immovable property
The standard VAT rate is slightly above the OECD average & equal to the EU average (2012 data)....
0
5
10
15
20
25
30
....but below average VAT efficiency
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Environmental taxes as a % of GDP are low
0,0
1,0
2,0
3,0
4,0
5,0
6,0
max: DK
med: HU
BE
min: ES
wt av., EU-27
TOP average tax wedge for single taxpayers at average earnings without children (2012)
0
10
20
30
40
50
60
Belgi
um
Fran
ce
Germ
any
Hung
ary
Austr
ia Ita
ly Sw
eden
Fin
land
Czec
h Rep
ublic
Sl
oven
ia Gr
eece
Sp
ain
Eston
ia Sl
ovak
Rep
ublic
Ne
therla
nds
Denm
ark
Turke
y No
rway
Po
rtuga
l Lu
xemb
ourg
OE
CD (3
5.6%
) Po
land
Icelan
d Un
ited K
ingdo
m Ja
pan
Cana
da
Unite
d Stat
es
Austr
alia
Irelan
d Sw
itzer
land
Kore
a Isr
ael
Mexic
o Ne
w Ze
aland
Ch
ile
Employer SSC Employee SSC Income tax
.
Also very high average tax burden for one-earner married couples at average earnings with 2 children
0
5
10
15
20
25
30
35
40
45
50 2012 2005
Relatively “flat” marginal tax burdens for single taxpayers without children for earnings ranging from 50% to 250% of
the average wage (2012)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
marginal employer SSC marginal employee SSC marginal local income tax marginal central income tax marginal family benefits marginal tax wedge (sum of the components) net personal marginal tax rate
“Slightly more progressive” marginal tax burdens for one-earner married couples with 2 children for earnings ranging
from 50% to 250% of the average wage (2012)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
marginal employer SSC marginal employee SSC marginal local income tax marginal central income tax marginal family benefits marginal tax wedge (sum of the components) net personal marginal tax rate
A highly redistributive tax and transfer system (late 2000s data)
0
0.1
0.2
0.3
0.4
0.5
0.6
Gini coefficient (after taxes and transfers) Gini coefficient (before taxes and transfers)
High standard CIT rate lowered by the “notional interest deduction”
0
10
20
30
40
50
60 2013 2000
OECD 2013
OECD 2000
• Notional interest deduction prevents the debt-equity distortion – there are many good economic reasons for the ACE!
• Belgium also treats royalty income favourably: – 80% of royalty income is not taxed: effective rate of 6.8%
– Applies to:
• Income derived from the licensing of patents (royalties)
• Income derived from the use of patented products by the company itself or on its behalf
– No ceiling
• EU Parent-subsidiary rules + well developed tax treaty network
• Relatively low taxes on capital income at the personal level
Belgium offsets high taxes on labour income by taxing capital income, to some extent, favourably
Below average effective statutory tax burden on dividends (2012)
BEL
FRA (highest proportional rate)
NLD
NOR
SVK (lowest proportional rate)
ITAnew
0%
20%
40%
60%
80%
100%
2% 4% 6% 8% 10% 12% 14% Rate of return
Combined statutory rate
Below average statutory tax rate on interest income (2012)
0%
10%
20%
30%
40%
50%
60%
DN
K
GB
R
AU
S C
AN
F
RA
U
SA
CH
E
CH
L
NZ
L
FIN
IR
L
ME
X
NL
D
SWE
N
OR
O
EC
D
ESP
A
UT
B
EL
D
EU
IS
R
PR
T
ISL
IT
A
JPN
SV
N
PO
L
SVK
H
UN
K
OR
C
ZE
T
UR
G
RC
L
UX
E
ST
Statutory tax rate
Further improve tax efficiency: relatively high tax administration costs as a % of net revenue collected
0
0.5
1
1.5
2
2.5
3
3.52005 2011
In some countries, including Belgium, Social Security Contributions are not included.
• Continue increasing government efficiency
• Shift from labour towards property, VAT, environment and, to some extent, capital income taxes
• Towards “broad-base-low-rate” equilibrium
• Get ready for Automatic EOI
• Base Erosion Profit Shifting Challenges
• Strengthen tax compliance & tax administration
Challenging tax reform times lie ahead….
