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Belgium and the Belgian economy will, according to economic indicators, be heavily impacted by the COVID-19 pandemic in 2020. To limit the economic damage, the federal and regional governments introduced several urgent support measures. These include, at the federal level, some temporary fiscal measures, such as the postponement of the VAT payment deadlines, faster reimbursement of VAT refunds and the reduction of VAT rates (e.g. for the hotels, restaurants and pubs/cafes). The adoption of these measures also illustrate the importance and role of 'value added tax' (VAT) in our society.

VAT as source of revenue

In 1971, Belgium introduced the VAT system on the basis of the European legislation in force at the time. VAT is an indirect consumption tax levied by the government on the supply of products and services. Over the years, VAT has become an important source of revenue in all EU Member States. Hereby, VAT revenue proved to be relatively stable and, in the longer term, less prone to economic recessions than income taxes, and has thus become a constant and indispensable source of revenue for state treasuries.

Beyond VAT being a stable source of state revenue, VAT measures can also play a role in influencing and stimulating economic activities, when applied in a correct manner. To stimulate an economy, a country can apply fiscal and monetary measures. While in the Eurozone monetary policy is determined by the European Central Bank, these countries can use their fiscal policy for national stimulus measures. Nevertheless, as far as VAT measures are concerned, account must always be taken of the harmonized European VAT rules.

Future-proof fiscal policy

In any future-proof fiscal policy at national and European level, VAT as a reliable source of revenue is essential. As citizens, but also as entrepreneurs, we have every interest in well-functioning public facilities, infrastructure, the investment climate and a livable environment. By collecting VAT on consumption in a more efficient and less fraud sensitive manner, the government can count on a robust source of revenue. At the same time, by adapting the levying of VAT in view of for example new environmental policies, VAT can be an instrument to stimulate environmentally friendly consumption, advance CO2-reduction and thus fight climate change. Furthermore, in light of the recovery of state revenue post-COVID-19 and in view of rapidly changing business models (such as e-commerce, the sharing economy, etc.), consumption taxes will continue to be a relatively secure source of national revenue in our consumer societies. This aspect is also important in the absence of an international agreement on the fiscal approach of the digitalized economy to ensure taxation in the country where value is actually created.

As part of a future-proof fiscal policy, the following questions should be considered:

  1. If Belgium was your company, would you, as CEO, want to use VAT as an instrument in order to stimulate future-oriented and sustainable economic growth?
  2. If so, does this mean that you – in the longer term - would consider increasing the standard VAT rate on products and services, rather than increasing the income tax rates on different types of income?
  3. As a consumer, would you be willing to accept an increased standard VAT rate (and potentially pay a higher price for goods and services) rather than an increase of the income tax rates on different types of income?  
  4. As a consumer, are you prepared to pay more VAT when you purchase a product that is, for example considered to be harmful in terms of greenhouse gas emissions (such as CO2 or methane), whereby that additional state revenue could be used to invest in alternative sustainable and future-proof infrastructure?

VAT revenue by 2025

Given our consumer society, it is reasonable to expect that the share of VAT revenue in the state’s treasury will grow in the coming years. This will happen despite temporary tariff reductions or economic recessions. When determining a future-proof fiscal policy, it is inevitable that the government pays more attention to environmental aspects. Against this background, VAT will increasingly be one of the most important sources of revenue in Belgium by 2025. 

KPMG’s Indirect Tax Team

KPMG’s Indirect Tax Team consists of highly qualified tax professionals with a specialization in indirect taxes, including value added tax, customs and excise duties, as well as indirect environmental taxes and levies.

Based on many years of experience and collaboration across industries and services, the experts of KPMG’s Indirect Tax Team have also developed industry specific knowledge and understand the business side of indirect taxes.

They can effectively assist you with all types of indirect tax matters, help you fulfil and improve your tax compliance, as well as support you in complex cases and tax audits. They are your trusted partner in managing all your indirect tax matters in the best possible way.

 

Author: Gyöngyi Végh, Senior Manager

The VAT system in Belgium was introduced in 1971, which will be 50 years ago in January 2021. On this memorable anniversary, KPMG Tax & Legal Belgium and Wolters Kluwer jointly publish a series of articles that reflect on the current VAT system in the context of our changing business and social environments. In each article, KPMG tax experts address a specific aspect of VAT and related challenges of the system and offer predictions on future evolutions by 2025.