Belgian personal income tax return form unique in its complexity

Belgians still judge their tax returns to be too complex

Brussels, 24 May 2012 – An international tax survey conducted by Deloitte shows that completing Belgian tax returns is more complex and time-consuming compared to many other countries. As part of the survey, Deloitte asked fellow tax consultants from 22 countries* for their views about their tax returns. The results show that Belgium is ahead of its neighbours when it comes to the electronic processing of returns, but they also indicate that the taxation process could be operated more efficiently, both for taxpayers and for the government itself. It would for example be possible to gain efficiency by decreasing the amount of personal deductions and by providing a clearer framework for business expenses. Also, shortening the tax return process by taking out the official notice of assessment (which does not exist in most countries) would be a step in the right direction. A summary of some of the more striking conclusions can be found below.

Only China does not allow personal deductions to be reported in the tax return

Of all the countries included in the Deloitte survey, only China does not allow for the possibility of taxpayers making personal deductions to lower the tax burden. In over 70% of the countries, these deductions can however generate significant tax savings. In Belgian there are many ways to make a personal deduction; decreasing the number of ways to make personal deductions would greatly simplify the tax return process.

Actual versus lump-sum business expenses

In 86% of the countries surveyed, the taxpayer can opt to declare the actual business expenses in the tax return which are to be taken into account for the calculation of the final income tax balance due. However, only in a minority of the countries involved (for example in Germany), taxpayers make frequently use of this possibility. Consequently, the majority of taxpayers, including the Belgian taxpayers, opt to make use of the lump-sum deduction for business expenses. A small group of the countries surveyed (13,64%), including the Netherlands, do not grant their taxpayers any option to claim actual business expenses incurred. Having to file for business expenses is an administrative burden for both the tax payer and the tax authorities, despite the fact that only a minority of the Belgian tax payers include actual expenses in their tax return. The burden could be reduced by deciding on a fixed framework to declare actual business expenses. This would consequently also improve the efficiency of the tax return process.

Tax refund or assessment?

In 36% of the countries surveyed (Belgium included), taxpayers must wait until they receive their official notice of assessment to find out the amount of their tax refund or the amount of additional taxes they will have to pay. In the remaining 64% of countries, the final calculation takes place at the same time of the filing of the tax return, or shortly after that. Using this method would allow for a much faster execution of the tax return process and would greatly increase its efficiency.

In almost one third of the countries surveyed, the tax return filing results in a status quo, i.e. the taxpayer generally does not receive a refund, nor does he/she have to pay a tax balance due. This applies to countries like the Netherlands and the United Kingdom. In 27% of the countries, including Germany and Belgium, the taxpayer expects a (modest) tax refund following the filing of his/her tax return. In France, along with about a quarter of countries surveyed, it is more likely that a tax balance is due upon filing the tax return form.

Electronic processing versus the brown envelope

In almost half of the countries examined (45%), the tax return process is carried out electronically. In Belgium, tax return forms are still sent out via a simple brown envelope to all taxpayers, apart from those who directly receive a proposition of taxation (e.g. retired people) or those who have declared that they wanted to file their tax return via Tax-on-Web. Similarly, our neighbouring countries France, Germany, Luxembourg and the United Kingdom, still send out paper forms to all taxpayers, or at least to those asking for it.

In 72,73% of the countries surveyed, citizens have a choice of filing a tax return on paper or using a tax-on-web option, as it is the case in Belgium. Only in Luxembourg virtually everyone still has to file a paper return. In Brazil, Italy, the Netherlands, the United States and South Africa, returns are primarily filed electronically. Increasing use is being made of the tax-on-web Internet service in Belgium. Minister Vanackere recently said that he wanted to reduce the paper pile even further so that paper returns would become the exception, rather than the rule. Deloitte is also seeing an extension of this trend.

With regards to deploying informatics to provide the tax payers with a (partially) prepopulated tax return form , Belgium is doing very well on an international level. And we are striving for even better results: Carlos Six, Head of the Belgian Personal Income Tax Administration, recently said that he is hoping to be able to obtain agreements with banks about the data around mortgage loans, so that an average family in the future receives a fully prepopulated income tax return which will only need to be validated.

China has the shortest tax return form

The two extremes in relation to the number of fields to be filled out in a personal income tax return are Spain, with more than 700 possible fields, and China, where the return only contains about twenty fields. On average, a tax return form includes less than 200 fields to be filled out. Belgium is at the top of the list, with over 400 fields to be completed. France and Germany do a little better with between 300 and 400. In Luxembourg, the tax return form contains over 500 fields and if you live in the Netherlands, you only have a maximum of 100 to 200 fields to contend with.

For many Belgians, completing a tax return is a boring chore

In half of the countries surveyed, filling in one's personal income tax return is considered to be a particularly unpleasant experience. This applies to Belgium and most of the bordering countries: France, Germany and Luxembourg. In the Netherlands, one considers it as a particularly irksome task. In Great-Britain, there are fewer headaches associated with tax returns: British taxpayers consider it as a "neutral" activity. In 77% of the countries surveyed, completing a tax return is not viewed as particularly difficult, and in principle no assistance is required. However, in India, Italy, Japan, the Czech Republic and Russia, it is standard practice to ask for assistance from the tax authority or from a professional adviser when completing a tax return. According to this survey, filling in a tax return on average takes up to one or two hours.

Competition for the most returns: Switzerland is the winner

In all of the countries examined in the survey, a personal income tax return has to be filed each year. In addition, every taxpayer in Canada, Japan, Switzerland (canton of Lausanne) and the United States also has to submit a regional tax return. The survey results show that only France, India, Spain and Switzerland have a wealth tax (or tax on assets). Switzerland leads the way in the number of separate tax returns that might need to be filed. First of all, a Suisse taxpayer is required to submit both a federal and a regional tax return. In addition, wealthy Swiss taxpayers have to file a wealth tax return. And if one of these individuals sells a property, he or she has to complete and file yet another return. In case of decease, an inheritance tax return also has to be submitted. In Belgium, there are just two forms to be filed: one federal income tax return, and in case of decease, an additional inheritance tax return.

Penalties for late returns vary from country to country

In both Belgium and the Netherlands it is reasonably easy to obtain an official extension for filing a tax return, without incurring penalties. But in the majority of the countries included in the survey, the tax authorities are less lenient. For example, in France and the United Kingdom, it is not possible to get a formal extension, and moreover, penalties are levied in case of late filing. In Germany, an official deferment can only be obtained if justified by exceptional circumstances. In Luxembourg there is no possibility to defer, but there are also no penalties for late filing.

Did we grant the authorities a free loan or are we being rewarded?

In most countries (59%), the tax authorities pay interests on top of the amount of taxes to be refunded to the taxpayer. In roughly one fifth of the countries surveyed (Germany, India, the Netherlands and Switzerland), the taxpayer is equally expected to pay interests to the tax authorities on any tax balance due, even if this balance is paid in due time. Belgians do not receive interests on top of the amount of taxes to be refunded. It can however take up to two years before the Belgian taxpayer receives the notice of assessment and related refund (if the tax return form has been filed through Tax-on-Web, this period is shortened significantly). In the opposite case, when the taxpayer has a tax balance due, interests are being charged (0,583% per month) as soon as the payment deadline has expired (normally two months upon receipt of the notice of assessment ).

Tax audits in all countries?

In theory, the Belgian tax authority can arbitrarily decide which files will be subject to a tax audit, since there is no legislation that determines the related selection criteria. The Belgian tax authorities however do have a fixed pattern in place, and computers are playing an increasingly important role in selecting those files that need to be audited. It is remarkable that the selection of the dossiers that need to undergo a thorough investigation still happens without a specific method or decision-making model in almost 70% of the participating countries. Some of these countries however take into account some particular focus points (e.g. higher income-earners in India, significant differences regarding previous years in France, etc.). Luxembourg and Switzerland are the only countries where no tax audits are conducted.