Government is making SMEs pay the price for a lack of strategic vision

Previously published at 'De Tijd' and 'L'echo' 

Government is making SMEs pay the price for a lack of strategic vision

Stop selling rate increases as a moral crusade against alleged abuses. This isn’t a fair tax reform.

Withdrawing money from your company is growing more expensive. Why should SMEs once again have to foot the bill for a budgetary policy that refuses to make strategic choices? The announced measures aren’t a reform. They are a fiscal dial that is being turned a little because it brings in money quickly and is politically easy to sell.

The liquidation reserve and VVPR bis: less attractive

In ‘VVPR bis’, the favourable regime for small companies, withholding tax on dividend distributions will rise from 15 to 18 percent for dividends on shares brought in as a capital contribution from 1 July 2013. At the same time, the liquidation reserve will become less attractive: you will pay 18 percent even if you don’t transfer profit into the reserve. As a result, the total tax burden on SME dividends will rise from around 32 to 34.4 percent (and on profits subject to the standard corporate tax rate, it will rise from 36.25 to 38.50 percent).

Issue
The De Wever government is raising the rates on profit distributions for small companies.

Conclusion
Instead of rethinking the system, the government is opting for ‘easy’ income, under the guise of combating abuse, which will affect the entire economy. Moreover, the rates could rise even further in the future.

This may sound like a minor adjustment, but the principle is highly problematic. It began with an attack by several government members on the supposed abuse of management companies. In reality, the government is now targeting any small company that ever distributes profits: from the local bakery to the family business with dozens of employees. A measure that affects everyone is by definition not a targeted way of tackling abuse: it’s a misleadingly labelled general tax increase.

Easy revenue

That’s what you get when a budget is consistently in the red and you refuse to reform spending. Instead of rethinking the system, you opt for ‘easy’ revenue: taxes that already exist administratively and are therefore quick to collect. Withholding tax? A slight increase. Liquidation reserves? Slightly less advantageous. Job done!

Stop selling rate increases as a moral crusade against alleged abuses.

It’s not an ideologically sound shifting of the burden onto the ‘broadest shoulders’. If you really want to hit only those at the top, you have to be prepared to adjust the foundations: fewer exemptions, less fragmentation, a simpler and broader tax system. That requires political backbone, not just raising a rate here and there.

Economic consequences of a higher tax burden

Increasing the tax burden on SMEs isn’t economically smart either. SMEs aren’t passive cash cows: they react. Lower net distributions mean lower returns on entrepreneurship, less room for risk-taking and less incentive to invest. And anyone who says that a dividend payout is by definition trivial doesn’t understand the reality of SMEs. For many business owners, it’s their pension, their financial buffer, their reward for years of insecurity.

The government can continue to squeeze that return, but then you get predictable responses: investments are postponed, variable remuneration is limited, prices go up to protect margins, and so on. So you’re not just taxing business owners: ultimately you’re also taxing employees and consumers. It’s a tax that haunts the economy like a form of silent inflation.

Slippery slope

There’s another reason why this is bad policy: once you go down this path, it becomes the standard solution for every subsequent budget shortfall. Eighteen percent today, 20 percent tomorrow, a general capital gains tax the day after with exceptions that will later evaporate. Look at how the securities tax has evolved in a short time. It’s becoming a slippery slope on which SMEs end up carrying a greater burden in every budget review.

Meanwhile, the core question remains unaddressed: why are we unable to build a government that can operate within its means without secretly digging ever deeper into the pockets of the productive middle class?

Conclusion: budget panic at the expense of SMEs

If the government really wants to tackle abuses, it should do so precisely and consistently. Define what constitutes improper use, enforce stricter controls, impose targeted penalties. But stop selling rate increases as a moral crusade against alleged abuses. This isn’t a fair tax reform; it’s budget panic at the expense of SMEs. Belgium needs small businesses to create prosperity. Not to finance its political inertia and lack of foresight