Taxing times: Belgium loses out on €10 billion in VAT revenue each year

Taxing times: Belgium loses out on €10 billion in VAT revenue each year
Credit: Belga / Virginie Lefour

The Belgian tax authorities are failing to collect almost €10 billion in VAT on products and services every year, a recent study has found.

The analysis, which was conducted by the International Monetary Fund (IMF) and reported on by l'Echo and De Tijd, found that in 2021 – the latest year for which data is available – 22.28% of the total amount of VAT owed to the Belgian State was not received by the country's tax authorities: an amount roughly equivalent to 2% of the country's annual GDP.

L'Echo and De Tijd further noted that, if the tax authorities were to recoup this money, Belgium's budget deficit – which is currently one of the largest in the eurozone at 4% of annual GDP – would easily fall below the 3% threshold mandated by the EU.

Perhaps even more worryingly, the report indicated that Belgium's record in collecting VAT revenue is notably worse than that of its neighbours.

In particular, over the period 2010 to 2020 Belgium's average 'c-efficiency ratio' (a number which evaluates a country's overall efficiency in collecting tax) for VAT was 0.48 – lower than France (0.49), the Netherlands (0.51) and Germany (0.56).

The VAT vanishing act

According to the report, Belgium's failure to collect VAT revenue has been a persistent problem for many years, with its compliance gap (the difference between its potential and actual VAT revenues) having remained at around 20% since 2011.

The study did, however, note two exceptions to this pattern. The first was in 2015, when Belgium's compliance gap rose to more than 25%, which the IMF suggested was a mere "artefact of [a] change in the statistical methodology". The second was in 2020, when the compliance gap rose to nearly 30%, which the IMF attributed to businesses and individuals opting for more cash-based payments during the Covid-19 pandemic.

"This apparent spike in the compliance gap could be partially due to a 'cash' effect, where taxpayers might have taken advantage of deferred payment schemes introduced to reduce the pandemic's impact on business," the study noted.

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Although the report was careful to emphasise that there were several reasons for the overall tax shortfall, it nevertheless affirmed that the "compliance gap appears to be largely concentrated in the professional and managerial services sector", a sector which includes consultants, lawyers and financiers.

However, the IMF stressed that its conclusions on this matter were only tentative. "The results on the distribution of the compliance gap by sector are not to be considered definitive, only suggestive," it noted, adding that the analysis alone "cannot determine the cause of the noncompliance."

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