Taxes in LuxembourgIncome tax takes precedence over VAT
LUXEMBOURG – The weight of direct taxes, mainly income tax, has increased over the years, to the detriment of taxes such as VAT.
Taxation increasingly involves direct taxes, notes the National Public Finance Council (CNFP) in its latest report, published in mid-June. Composed of 94% by income tax, direct taxes have seen their weight increase in recent years, to the detriment of indirect taxes, fed by VAT, customs duties or even the subscription tax.
While they were in the minority in 2004 and still almost equal ten years later, indirect taxes accounted for 57% of taxation last year. But that does not necessarily mean that taxpayers have been aligned by the tax administration, tempers Marc Wagener, president of the CNFP: “It’s about the weight as a whole, that doesn’t mean that some are falling and that the others increase”.
Debate on the indexation of tax scales
The explanation is first of all “the weakening of VAT”, linked to a European rule on electronic VAT, which “Luxembourg can no longer collect as before”. Then, the Grand Duchy “has created a lot of jobs over the past ten years, especially fairly well-paid jobs. For example, public administration recruited proportionally more than the rest of the economy. So there is an effect on taxation.
Finally, Marc Wagener revives the debate on the non-indexation of tax scales to inflation. “This contributes to the phenomenon of strengthening direct taxation,” he explains. Indeed, the three indexations in 18 months “have made us all slide into higher tax brackets”. Hence, in this case, an increase in the tax rate.