Monday , January 25 2021

What is the future for personal income tax?

In the future, the tax will be more than today, charged with consumption.

Bruno Kolmant
Degroof Petercam
Member of the Royal Academy of Belgium

What will be the strong tax trends affecting people in the digitized world? Without pretending to a unique view of its realities, I identify several, all of which towards a reduction in the production tax in favor of a revised consumption tax.

First trendmobility (physical and digital) of people and work changes the tax equation. The tacit agreement between the taxpayer and the state assumes that business income tax is levied in the same country as the allowance. If this overlap is no longer ensured, as it is more and more often, this should lead to a simultaneous reduction in social benefits and occupational tax.

Second trend refers to the growing confusion between taxation and parafiscal Taxation is based on the obligation of everyone to finance public spending in accordance with their income. Parafiscal, he mutually influences the risks of citizens and ensures social solidarity between them. From the moment when the tax becomes individualized, the same thing happens with parafiscality, which will gradually move from the distribution system to the logic of capitalization. Charges will be proportional, and redistribution inversely proportional to taxable income is likely to globalize.

Third trend thiner. Factor mobility creates difficulties in properly accounting for professional income. The tax will move away from tax consumption (i.e. Flow) instead of saving. This evolution will be accompanied by a tax incentive role. It will be modulated in accordance with large aggregates, in particular climatic and environmental ones.

Another trend local taxation (regional, municipal, etc.), which will inevitably develop.

© Belga

Therefore, it is necessary to rethink income tax. It will also be necessary taxation that prevents harmful or anti-social behaviorsuch as unwarranted use of certain crowded public infrastructures, the use of particularly polluting private vehicles, or short-haul air transport.

In addition, social transfers should be changed very gradually, and as the population ages, forcing retirees and the working population to bear the main burden on the adjustment, that is, what creates wealth. This will force the middle class to create cautious personal savings, as it will understand that government relays will gradually disappear.

There should be no illusions, the adjustment of social models will take at least one generation.

In financial terms, this should lead through the system of deductions to promote long-term savings and personal protection systems. Unlike capital taxation, retirement savings and life insurance premiums should be encouraged through private sector contributions and tax breaks. There should be no illusions, the adjustment of social models will take at least one generation.

In the coming years, the fundamental question will determine the taxation of individuals: according to which should the gradient remain personal income tax as an instrument of solidarity? This suggests that with a zero assessment of the risk associated with work and capital. The role of taxation and parafiscal will be changed. Parafendicate will be confirmed in its redistributive role, while taxation will have a more stimulating role in creating and distributing savings. At the same time, the tax on the life of the taxpayer should be more harmoniously distributed. The tax will be more than today, charged with consumption.

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