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IMF urges Belgium to modify labour tax system to generate extra revenue

IMF urges Belgium to modify labour tax system to generate extra revenue

BRUSSELS: The International Monetary Fund (IMF) said that Belgium’s economic program includes “many welcome measures” to address macroeconomic challenges caused by low employment and the country’s fiscal imbalance.

It said that there has been a net decrease in Belgium’s labour taxes, but that more tax reforms could generate extra revenue to reduce them still further.

In a statement following an IMF mission to the country, the body identified scope for reform in the taxation of income from capital, as well as in the areas of property taxes, VAT and environmental taxes.

The organization advised that with increasing European banking integration, Belgium’s tax exemption on bank deposits should be re-considered. Otherwise, it suggested, the tax benefits will “leak out” from the country’s borders, as foreign banks tap into Belgian savings. The IMF also said that income from capital is not taxed uniformly, and that a more harmonized approach would put it on a more equal footing with taxes on labor income.

On property taxes, the IMF recommended that these should be re-balanced away from transaction taxes and towards recurrent taxes on immovable property. It argued that this would stabilize tax collection and enhance labor mobility.

The IMF also suggested that there could be fewer deviations from the standard VAT rate, noting electricity in particular, as well as increased environmental taxes.

More generally, The IMF advised that there should be more flexibility in labor pay and conditions, and that the country should promote growth-enhancing investment spending. It also recommended “a more aggressive approach” to promoting market competition, policy initiatives on training, a “strategic vision” on energy policy, and greater policy coordination across the regions to reduce the cost of doing business.

In June, the European Union’s (EU) Tax Trends report showed that Belgium has the highest labor tax burden in the EU, with an implicit tax rate (ITR) of 42.8 percent.