Indirect tax consequences of failure of broad tax reform

On 18 July 2023, the Belgian coalition government’s negotiations on the broad tax reform proposal failed. As a result, no major tax reform is expected during the current term of government as there is likely to be no capacity for the necessary fiscal measures in the budget round planned for October 2023.

Background

In the summer of 2022, the minister of finance presented a blueprint for a broad tax reform (Dutch | French), intended to modernise the Belgian tax system and to shift the tax burden from work to capital and consumption. In March 2023, the minister of finance published a proposal based on this blueprint (Dutch | French). The first phase included 20 measures which would have taken effect as from 1 January 2024.

Indirect tax measures

From an indirect tax perspective, the following changes were proposed, to shift taxation onto consumption and pollution to encourage sustainable and healthy choices:

• The harmonisation of the reduced 6% and 12% VAT rates into a new 9% rate, other than for certain specific supplies;
• The reduction to 0% of the VAT rate for fruit and vegetables, medicines, nappies and other products for intimate hygienic protection, and public transport;
• The retention of the 6% rate for electricity, natural gas, tap water, and heating for domestic use;
• The reduced VAT rate for demolition and reconstruction of a person’s sole residence would be made permanent;
• An increase of the excise duties on tobacco and new tobacco products as part of the anti-tobacco policy; and
• A reduction in existing subsidies for fossil fuel.

The proposal also includes measures to digitalise the VAT system by introducing e-invoicing and e-reporting, which would lead to simplified administration.

Consequences and action points

The potential consequences and possible actions if the proposed indirect tax reforms do not proceed include the following:

Demolition and reconstruction

The current temporary VAT reduction for demolition and reconstruction would expire on 31 December 2023. It is hoped that this measure would once again be temporarily extended, or a transitional measure put in place. If the VAT reduction were no longer available, the VAT cost of housing reconstruction activities would increase to 21%; however, renovation activities would still be subject to the reduced rate of 6%, assuming that the harmonisation of VAT rates does not proceed.

Deloitte Belgium’s real estate team is available to review how to best approach each specific demolition and reconstruction or renovation project going forward.

E-invoicing and e-reporting

Although the Belgian government has presented proposals that would introduce mandatory business-to-business (B2B) e-invoicing and e-reporting for domestic transactions with the first deadlines in 2024, it seems that the government’s implementation programme has taken a step backwards, moving from a proposal to an intention. The 2024 deadlines that were stated in the proposal have therefore become obsolete. Business may still voluntarily adopt e-invoicing, which could result in a reduction of their administrative burden, and therefore it may be advisable to analyse the e-invoicing and automation opportunities for both inbound and outbound transactions.

Deloitte Belgium offers, in partnership with Arco Information, a comprehensive hybrid invoicing and integrated tax solution for generating and distributing e-invoices.

Deloitte Belgium comments

A clearer perspective on the changes is expected in autumn 2023. In the longer term, the introduction of mandatory e-invoicing and transactional reporting remains highly likely, especially given the intentions expressed over previous year by the Ministry of Finance, and in the broader context of the European Union’s VAT in the Digital Age proposals. Businesses active in Belgium should therefore keep this topic on the finance and tax agenda. It remains to be seen whether the other measures, such as the harmonisation of the reduced VAT rates, will ever be implemented.