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News | 20 September 2022 | 19:10
The fourth Rutte government today submitted its 2023 tax package to the House of Representatives. The package includes numerous measures aimed at supporting purchasing power, totaling more than 17 billion euros. This support is important in view of the sharp rise in prices, especially for energy. At the same time, the package will make work more rewarding by striking a better balance between labour and wealth taxation. For example, the employment tax credit will be increased and the income tax rate payable in the first tax bracket will be reduced. Companies will pay more corporate tax on their profits and tax relief for the self-employed will be phased out more quickly.
“The consequences of the war in Ukraine are enormous, including in terms of its impact on the economy,” explains Marnix van Rij, State Secretary for Tax Affairs and the Tax Administration. “We are all seeing rising prices at the cash register and rising energy bills. Inflation has not been this high for decades. That is why we are taking substantial measures to help people on low and middle incomes. We are also introducing structural measures to improve the tax system. Over the years, the tax burden on several different types of workers – employees, self-employed people and directors and majority shareholders – has been increasing. This is due to various changes affecting three categories of taxable income (boxes 1, 2 and 3). Wealthier taxpayers have benefited the most from these changes. The tax system was not supposed to work this way and the measures in this tax package will correct this situation. In the area of climate policy, we are taking an important step towards a greener tax system.”
Purchasing Power
The government sees that it has a major responsibility to support households and businesses in this difficult period. It has therefore drawn up a package of purchasing power and energy-related measures to ease the burden. The government cannot alleviate all the pain, but it can help cushion the worst blow, partly through the tax system. In its budget plan, the government has set out a very large package of purchasing power measures worth €17.2 billion, of which €5 billion will be provided in a structural way. This package includes measures aimed at supporting vulnerable groups and those on middle incomes, such as increasing the employment tax credit to a maximum of €500 net per year and reducing the first-tier income tax rate. As a result of these measures, it will pay more to work.
A better balance between labor and wealth taxes
Several measures are proposed to better balance the tax burden on labour and wealth. These include changes to the corporate tax rate, the accelerated elimination of tax relief for the self-employed and the abolition of the customary wage efficiency profit margin used to calculate the taxable salary of directors and majority shareholders. This will generate gains of €5 billion. The aim is to reduce the gap between the tax burden of employees and business owners in recent years. In addition, the tax relief on capital gains in Box 3 will be increased to €57,000. Large amounts will be subject to more tax, and the tax rate will increase each year, reaching a maximum of 34% by 2025. The gift tax exemption for financing the purchase of a home will be reduced in 2023 and abolished from 2024. The general rate of transfer tax will be increased from 8% to 10.4% for residential property investors and commercial property buyers.
Part of the amount generated by these tax increases will be reinvested in structural measures in favour of SMEs. For example, €600 million will be allocated on a structural basis to reduce costs for employers and make them more attractive. Changes to box 2 in 2024 will help in this regard; contributions to the disability insurance fund (AOF) for small employers will be reduced, and the energy investment tax credit, the environmental investment tax credit and the work-related costs scheme will be expanded. In addition, SMEs will ultimately benefit from the reduction in the tax burden on households, as this will increase consumers’ stretched disposable income.
simplify
The 2023 Tax Planning Bill goes a long way towards simplifying the tax system. The bill proposes the abolition of four schemes: the income-related combination tax credit (IACK), the averaging scheme, the pension reserve scheme (FOR) and the customary remuneration scheme for start-ups. Measures to tackle and stamp out tax avoidance schemes will generate up to €550 million in revenue. In addition, by summer 2023, the government will present a plan outlining steps to further abolish or simplify tax regulations that have received negative attention.
Climate policy
Climate issues and the energy transition are at the heart of the current government’s policy. Environmental taxes are an important tool for encouraging climate-friendly behavior. Due to currently high energy prices, an increase in taxes on polluting energy (natural gas) and a reduction in taxes on electricity will come into effect in 2024, one year later than originally planned. The government will thus continue to take long-term measures to promote sustainable development. The tax package also includes other long-term climate-related measures. For example, industrial companies will be encouraged to make additional cuts in their CO2 emissions.2 Reducing emissions by reducing “allocation rights” which represent exemptions from CO2 tax2 Industrial emissions. In addition to the existing carbon tax, a carbon price floor will be introduced for industry from 1 January 2023, i.e. a minimum price that industrial companies will pay for all their emissions. Aviation tax will increase to €26.43 from 1 January 2023. The VAT rate on the purchase of solar panels will also be reduced to 0%, making it easier to buy solar panels. Finally, the government will take additional measures in the transport sector. From 2025, car and motorcycle taxes on light commercial vehicles will be levied according to their CO2 emissions.2 Emissions will no longer be calculated based on the price tag, and corporate tax exemptions will be cancelled.
Box 3
The taxpayer compensation set out in this tax plan and the transitional legislation relating to box 3 is based on how the box 3 tax base is actually distributed between savings, investment and debt, and is based as far as possible on the actual return on that income, rather than on a nominal distribution. This means that, from 2021, taxpayers will pay almost no tax in box 3 on their savings (at current low interest rates). The compensation arrangements and transitional legislation are therefore fairer than the old system.
In recent months, the government has been examining whether and how to provide some form of compensation to taxpayers who did not object to their tax assessments on category 3 income. The government explored ways to provide compensation primarily to small savers. However, the government has now decided not to provide compensation to taxpayers who did not object. Full compensation would cost €4.1 billion, more than half of which would be paid to taxpayers with category 3 income of more than €200,000. The government’s priority at the moment is to guarantee the socio-economic security of those who already find it difficult to pay their bills. The government has therefore opted for a comprehensive set of purchasing power-related measures.
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