As a tax lawyer, I love delving into the tax jumble which our country has become, with its back doors and shortcuts, but the time is right for a halt to the tax edifice.
Every week, the newspapers are full of articles about the umpteenth addition to our tax system: bank tax, sugar tax, capital gains tax, and suchlike. Usually, they are concessions made to one or other interest group. In fact, this increasing complexity is counter-productive for everyone, because in terms of substance, all of these interest groups all agree on one movable - and immovable - principle.
Ronnie Leten (CEO AtlasCopco), Hans Maertens (Managing Director Voka), Dominique Moorkens (Chair FBN), and Rudy De Leeuw (Chair ABVV) all argue for a stable environment in which business, society and work are facilitated as much as possible. A transparent tax system is necessary to preserve and encourage growth.
Instead of adding the umpteenth incomprehensible rule, five of the most obvious flaws in the personal income tax and corporation tax systems should be tackled. And that can be achieved without organising politicised debates about policy choices.
800 codes on the personal income tax return
Without professional assistance, it is almost impossible for the taxpayer to find his way through the more than 800 different codes. Immovable, movable, professional and miscellaneous income are all taxed at separate rates in their own tax regimes. Each category of income includes specific exemptions, presumably created with noble intentions. For example, the favourable tax measures for acquiring your own home, the car tax and the tax for investments in research and development.
In practice, it is frequently the case that the taxpayer does not claim the deductions or tax concessions, due to a lack of tax knowledge. You only have to think about the horribly complex residency taxation, which depends on the decade in which the loan was taken out, and the location of the immovable property.
Surely it is not the intention of the tax system that these deductions are limited to those who pay for tax advice. Despite the numerous "pre-completed tax return" initiatives from the government, it is still the case that the pre-completed elements are kept to a strict minimum.
One solution could be wizards which could provide information about e.g. the taxpayer's property, in the event of any questions.
Fiscally encouraged to behave irrationally
It is a traditional custom of our tax system to use taxes to manipulate the behaviour of taxpayers. Examples that spring to mind are driving with environmentally-friendly transport, saving for pensions or insulating your roof. These are all laudable aims, which were undoubtedly politically motivated.
However, it becomes a problem when this system encourages the taxpayer to make irrational decisions. I will summarise a few of them:
- the decision to live far from work in the countryside (a combination of tax deductions in the residency taxation with the deduction for the actual travel costs to work, or a company car);
- urging employees to take a company car because this is one of the last remaining ways to reward an employee with a pay increase without the tax wedge between gross wage cost and net wage being a factor of 2.5;
- granting all sorts of meal vouchers, gift vouchers and other vouchers (whereby the government decides for the taxpayer how he should spend his money);
- encouraging a non-working spouse to work (part-time) because eliminating the conjugal portion of the extra monthly gross wage of EUR 1,000 at the family level does not result in a significant extra net wage;
- setting aside large amounts of "cash" in savings accounts and other financial instruments for "later", while businesses have difficult, or zero, access to sufficient financial resources.
These "irrational tax advantages" need to come under urgent scrutiny. It should be possible, to a large extent, to make the decisions outlined in a tax-neutral manner.
The (just about) highest nominal rate in Europe
Corporation tax has already come under scrutiny. The Belgian system contains a number of deductions and favourable tax measures, meaning that for some taxpayers, the actual tax basis isn't too bad. But the nominal rate of 33.99% is one of the highest in Europe. Under pressure from Europe and the OECD, a number of favourable tax measures were reined in.
Why don't we bring the nominal rate more in line with the actual tax basis? The business world would benefit from a stable tax environment, with a long-term vision in which investment in research and development is more strongly encouraged. I will give one example: on the one hand, everyone agrees that the recent changes made to the innovation deduction is a good thing; on the other hand, an extremely detailed documentation obligation has been imposed on companies.
There are steps in the right direction, but the attention of businesses is often taken up by changing legislation relating to benefits in kind, (partially) rejected expenses, investment deductions, and so on. A good example of this is the fairness tax, introduced in 2014, which even among tax specialists resulted in controversy and interpretation problems with regards to its correct application. It has since been (partially) torn up by the Court of Justice of the European Union.
A disincentive for paying out dividends
The fiscal treatment of corporate profits (partly) depends on the destination of the funds. Companies who do not pay out a dividend sometimes benefit from a reduced rate of corporate tax. They can claim the notional interest deduction, in other words "hoard" the money for later at a favourable tax rate.
Corporate tax doesn't need to go up, but we must put a stop to a fiscal policy which is focused on discouraging shareholders from paying out a dividend. From 1 January 2017 onwards, the total tax burden on dividends will amount to 53.8%. By not paying out any dividends and recording all the profits of the company in a cash reserve, the tax burden on the first tranche of 25,000 euros can be limited to 32.5%. The consequence is that these financial resources do not re-enter the economy (even though the company can use these funds to make investments).
Outdated class-based thinking
The current tax system encourages class-based thinking: the little guy, the big landowner, the hard-working small business owner, the super rich, the young, the pensioners, the minor investor.. It pigeonholes people, each with their own preferential tax treatment.
But in the meantime, reality has become a lot more subtle: the so-called little guy is sometimes also a minor investor, the big landowner is also an employee or shareholder in a company which pays out profits, and pensioners have contributed to economic growth for their entire lives and only think it is right that their income from pension funds is taxed at a separate (lower) rate.
There is a twofold solution in my opinion:
- a substantial reduction in the nominal rate, both for personal income tax and corporate tax, so that business is stimulated once again, and hoarding cash is no longer fiscally encouraged;
- a uniform rate for all forms of income, so that it no longer matters how a taxpayer structures his assets. This can be done with tax-free thresholds and specific regimes for very strictly defined taxpayers.
Which politician, right across political party lines and ideological boundaries, has the courage to demolish the holy temples and take the measures which will actually benefit everyone in the short and medium term?