News item | 07-07-2023 | 2:59 pm
Recommendation: take a closer look at this one
Research by the Ministry of Finance into 116 tax schemes has shown that 11 of the 73 schemes examined contribute efficiently to the intended purpose. At the same time, some of the schemes have been overtaken by time or are very complex for the Tax and Customs Administration or taxpayers. Tax arrangements – an exception or reduction in taxes to be paid – create complexity in the tax system and considerable implementation and enforcement costs. The official report Approach to tax schemes advises a critical look at schemes that score poorly on one or more criteria.
Scoring schemes
The study examined 116 tax schemes. All these measures have a special purpose and often ensure that customization can be provided for a specific target group, so that they have to pay less tax. This concerns, for example, exemptions, discounts or a reduced rate. This is understandable from a social point of view, but these schemes lead to an increasingly complex tax system. This is because every exception also leads to more complexity. In addition, tax arrangements lead to lower tax revenues. In 2023, the tax schemes will together amount to a total of € 150 billion, which is approximately 40% of the government’s total tax and premium income. In the study, Ministry of Finance officials assessed tax arrangements against the following four criteria:
- Does the scheme do what is intended (effectiveness) and does it do so efficiently (effectiveness);
- Is there a basis for government intervention;
- Is there any complexity in the implementation and enforcement;
- Does it take (too much) effort to benefit from the scheme (ability to act)?
Of the 73 schemes for which evaluation reports are available, it appears that for 41 schemes it is uncertain whether they are effective and efficient. It appears that 21 schemes are not effective and efficient. In addition to effectiveness and efficiency, the reason why a regulation has been created has also been examined. In 17 schemes there appeared to be no (any longer) substantiation for government intervention and in 33 schemes this is uncertain. Researchers also looked at the feasibility of the schemes. This showed that 24 schemes are very complicated from a technical point of view for the Tax and Customs Administration and that 11 schemes place great demands on taxpayers’ ability to act. This means that it takes (too) much effort for people to take action to benefit from the scheme, even when they are well informed.
Recommendations
The report recommends to be cautious with new tax schemes and to take a critical look at schemes that score poorly on one or more criteria. For new schemes, this is best done by carefully applying the assessment framework for tax schemes. For existing tax schemes that score poorly, the advice is to take a critical look at whether the schemes can be improved or whether they can be cut back or abolished. It is also advised to update the objectives of existing schemes where relevant, because the objective of a number of tax schemes has now become obsolete or has not been formulated in sufficient detail.
Follow-up
This study was carried out by the Ministry of Finance in collaboration with other ministries, because part of the schemes fall under their policy responsibility. In addition, the research agency SEO has confirmed the research method and the results of the research, so that the independence and quality of the research are guaranteed.
This official report is part of the approach to tax regulations, with which the government wants to simplify the tax system. The results of the internet consultation from earlier this year have also been included in this report. The government will study the results of the report and intends to respond to the report after the summer.