Implementation of tax measures in coalition agreement
Both a memorandum of amendment to the 2018 Tax Plan and a new bill implement a number of policy intentions in the coalition agreement.
15 November 2017
Some parts of the coalition agreement presented on 10 October 2017 will take effect as early as on 1 January 2018. To this end, the government recently presented a memorandum of amendment to the 2018 Tax Plan. On top of that, a bill was submitted that provides for the gradual phase-out of the facility enabling tax deductions for non-existing or minor home acquisition debts. The following is a summary of the proposed changes.
Corporate income tax
No extension of first income tax bracket
The coalition agreement provides for a substantial reduction of corporate income tax rates. However, the gradual extension of the first income tax bracket up to EUR 350,000 ultimately, provided for in the 2017 Tax Plan, will be cancelled. For FY2018 this means that the first income tax bracket is capped at a taxable amount of EUR 200,000, instead of EUR 250,000 as previously proposed. The EUR 200,000 cap will be maintained in the coming years.
Profits realized using qualifying innovative activities are effectively taxed a rate of 5% in 2017, through application of the innovation box. The government proposes to raise this effective rate to 7% as of 1 January 2018. Transitional provisions will be introduced that provide for situations in which benefits received before that date have to be reversed at a later date. In the explanation to the memorandum of amendment, the legislature refers to the situation in which a claim for a patent or plant breeder’s right submitted in 2017 is rejected.
Payroll and income tax
Notional rental value for owner-occupiers
From 2019 onwards, home owners who have repaid their home acquisition debts will - on balance - pay income tax on the value of their house. Tax deductibles for non-existing or minor home acquisition debt (under the so-called Hillenregeling) will be phased out over a 30-year period: each year the benefit will be reduced by 3.33%. This means that in 2019, 96.67% of the positive difference between the notional rental value for owner-occupiers and the deductible expenses relating to owner-occupied property can be used as an additional deductible item. The government justifies this statutory change by arguing that this scheme increasingly weighs on the budget because the law requires new home acquisition debts to be repaid since 1 January 2013.
Increase of tax-free allowance in box 3
Effective 1 January 2018, the tax-free allowance in box 3 will be raised to EUR 30,000 per taxpayer (2017: EUR 25,000). This is intended to spare small savers. Also, more up-to-date figures will be used to calculate the yield on the savings part of a person’s capital. As a result, the fixed yield to be taken into account for small capitals in 2018 will likely be substantially lower.
The elderly person's tax credit will be EUR 160 higher as from 1 January 2019. However, the memorandum of amendment also provides for a gradual income-related phase-out of this tax credit to nil. The phase-out percentage is 15% for aggregate incomes that exceed about EUR 36,500. This system will replace the strict income threshold currently applied.
Another relevant change is that, as of 2019, disbursement of the employment credit and the income-related combination credit to the partner with the lower income will be phased out, as is already the case for the general tax credit. The government has chosen to use the phase-out percentage of the latter tax credit. This means that in 2019, only 26.67% of the total amount of these tax credits qualifies for disbursement. Contrary to the general tax credit, the phase-out of the employment credit and the income-related combination credit also applies to taxpayers who were born before 1 January 1963. The phase-out will be completed in 2023.
Tobacco excise duty
The tobacco excise duty is set to be raised by a total of EUR 200 million up to 2021. Apart from generating budgetary revenues, the new government uses this raise to promote its policy objective of a non-smoking generation. Also because of the expected behavioural effects, this will translate into a sizeable increase in excise duty rates.
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