Areas of Strength
- Belgium is well advanced in digitalising its tax administration and has developed a digital transformation strategy. Belgium has e-filing rates in personal income tax (PIT), corporate income tax (CIT) and value-added tax (VAT) returns above the EU average. Belgium makes use of AI for predictive risk analysis, for collecting data from websites and to match these with their existing database. Belgium also makes use of advanced electronic systems to fight cross-border VAT fraud.
- Belgium has in place a comprehensive reporting on tax expenditure (TEs), which are published yearly. The report on TEs is published in the ‘Federal Inventory of Tax Expenditures’, that is annexed to the budget. Furthermore, Belgium has recently implemented a spending review framework that covers TEs, primary expenditure and the social security sector.
Areas for Improvement
- At 12% in 2023, VAT compliance gap remains among the highest in the EU. This figure makes Belgium the Member State with the 6th highest VAT compliance gap in the EU, and it is expected to increase further in 2024. Nevertheless, recent reforms have supported the stabilisation of the VAT compliance gap. The Belgian tax administration could expand on the recent administrative and compliance changes, which include adjustments to the reverse charge mechanism in construction, longer statutes of limitation, an extended document retention period, updated late payment and refund interest rates, and mandatory e-invoicing for certain government contracts.
- Belgium’s tax expenditures result in considerable foregone revenues, mostly stemming from measures related to VAT and personal income taxes (PIT). The latest TE report estimates total foregone revenues for EUR 31 billion, representing 6.1% of GDP or 18.4 % of total tax revenues. The majority of the TEs are related to VAT (2.2% of GDP) and PIT (2.1% of GDP). The VAT policy gap in Belgium has gradually increased since 2021 up to 55% of the notional ideal revenue in 2023, with reduced rates behind 97% of foregone revenues in the area. Overall, PIT-related TEs lead to progressive results, thanks to the income inequality reducing effect of the tax reduction for replacement incomes. The introduction of the planned spending review framework that covers TEs may allow the tax administration to identify and phase out ineffective TEs.
- Belgium does not currently have in place processes to estimate CIT and PIT compliance gap. Such analysis could help policy makers understand the nature and magnitude of the problems related to PIT and CIT collection. Furthermore, by implementing processes to measure and monitor tax compliance gaps, the tax administration can better assess the effectiveness of their tax policy.
Tax Complexity
Belgium ranks 22nd out of the 27 Member States in the Tax Complexity Index (‘TCI’), where a higher rank corresponds to lower tax complexity. The TCI is based on the Global MNC Tax Complexity Project, a joint research project of Deborah Schanz (LMU Munich) and Caren Sureth-Sloane (Paderborn University). The TCI 2024 places Belgium 8th among the Member States with regards to Tax Code Complexity, and 27th with regards to Tax Framework Complexity. This may indicate that, whereas the structure of the tax regulations is rather efficient, multinational corporations perceive tax processes to be burdensome and onerous (notably in the area of audits, according to the authors).
The full Commission Staff Working Document of the Mind the Gap Report - Challenges and opportunities for tax compliance and tax expenditure in the EU regarding Belgium can be found here.
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