Belgian government hitting dividend investors with tax hike

The Belgian government’s long-discussed tax shift has arrived and it’s not good news for investors. The tax shift (called tax lift by some) promises to keep and create more jobs by making labor cheaper as well as increasing the purchasing power of people with low to middle income.

To finance this, the government is increasing taxes on consumption and the tax on investment income. For various reasons, the previous government lowered the VAT rate on electricity from 21 percent to 6 percent but this costly measure is being cancelled. Unfortunately, the Flemish government already has a new electricity tax in the pipeline to fill a hole caused by the oversubsidizing green energy plus prices are also going up due to a change to  corporate tax exemptions. Combined these three tax hikes will significantly increase the electricity price – which was already heavily taxed.

Unhealthy food is in the crosshairs as well, not a lot of details are available about how they’re going to tax this but Denmark once did something very similar and they cancelled it after only a year because food prices and administrative costs soared. People didn’t change their eating behavior and lots of folks started shopping across the border to avoid the tax.

After months of discussion about a possible capital gains tax or a tax on speculation, the parties in charge agreed on creating a monster called the “speculation tax”. Not a lot of details are available but it seems it’s going to be a tax you’ll have to pay on gains when you sell shares within six months after purchase.

The tax is largely symbolic, it’s expected to earn the government as little as 28 million euros a year. It’s no doubt going to be very complex to implement, resulting in lots of wasted time and administrative costs. Experts fear the speculation tax will chase away people from the stock market, resulting in lower liquidity on the Belgian stock market as well as fewer IPOs in Brussels. Meanwhile, the real speculators will not be harmed by this tax as on shares only and they can always move to London or someplace else to avoid the tax. I believe this tax is going to cost a lot more than it’s going to earn the government.

I follow a long-term buy-and-hold strategy so this speculation tax shouldn’t harm me too much but unfortunately the government also increased the tax rate on income from investments from 25 percent to 27 percent. Quite unexpected and definitely a slap in the face for dividend investors as this makes it even harder to grow passive income.

This is the third dividend tax increase in just a couple of years, the original rate was 15 percent. The first increase took it to 21 percent (same as the VAT rate), then they rose it to 25 percent and now it’s 27 percent. I hope this is not a trend or dividend investing is becoming very unattractive in Belgium.

Hopefully there’s some truth to the part about higher purchasing power as all the tax increases by the various levels of government leave me with a very disheartening feeling.

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