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Netherlands Should Further Cut Labor Tax Burden, IMF Says

by Ulrika Lomas, Tax-News.com, Brussels

16 November 2015


The International Monetary Fund (IMF) has welcomed recent tax reforms in the Netherlands but said that more needs to be done to lower the tax burden on labor.

In its Article IV consultation with the country, the IMF said that Dutch tax reforms could make the tax regime fairer and more efficient while boosting growth. In particular, it said the tax burden should be shifted away from labor towards consumption taxes and taxes on capital income.

The Government has recently taken a number of steps in the right direction, the IMF said. For example, it has been decided to roll back some of the regressive features of the taxation of capital income. Also, next year's EUR5bn (USD5.4bn) labor tax cut package is mainly targeted at female workers and low-wage earners, which is expected to help create new jobs and increase hours worked. However, the Fund said more could be done and faster.

The large subsidies on home ownership and pension income could be phased out more quickly than currently envisaged, it said, adding that this would rapidly reduce the labor tax wedge – the difference between before-tax and after-tax wages. Moreover, important tax revenue and efficiency gains would result from harmonizing capital income and value-added tax (VAT) schemes, it said.

The IMF also said that revenue shortfalls from corporate tax reforms could be offset through broadening the VAT base and unifying VAT rates.

TAGS: capital gains tax (CGT) | VAT rates | tax | economics | value added tax (VAT) | Netherlands | fiscal policy | revenue guidance | budget | International Monetary Fund (IMF) | tax reform | individual income tax

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