The botched VAT reform is back on the negotiating table

Following a critical opinion from the Council of State, the tax reform championed by the Arizona coalition has stalled. Deemed too complex and legally precarious, the proposed targeted VAT increase, particularly affecting food consumption, has been sent back to the cabinet. Amidst rising political tensions, the idea of a general increase in the standard rate has resurfaced.

© BART DE WEVER / LINKEDIN

Decided hastily at the end of November, without knowing whether it would have a significant impact on local authorities, the VAT increase from 6% to 12% in the restaurant sector was supposed to take effect on March 1st to help replenish state coffers. However, the proposed tax reform has run into a major obstacle. The Council of State has issued a very critical opinion on the text, pointing to vague criteria and risks of unjustifiable discrimination between sectors.

Food and takeaway in the crosshairs

The government's initial plan aimed to double value-added tax on a range of specific goods and services, including takeaway and food deliveries. The budgetary objective was to generate approximately €475 million in revenue.

However, the implementation of this measure resulted in a series of missteps, lamented by many observers and economic stakeholders. The system created distinctions deemed absurd, penalizing, for example, fresh, artisanal foods (prepared on-site) in favor of pre-packaged, long-life industrial products. Even the renowned Flemish entrepreneur Marc Coucke echoed these inconsistencies.

It is precisely this complexity that the Council of State has sanctioned. The highest court considers that the criteria used to apply the 12% rate or maintain the 6% rate lack objectivity and relevance, undermining the very legality of the text.

The return of the track to 22%

Faced with the failure of this targeted approach, the government must thoroughly revise its plan. All Flemish parties in the majority support a reform with two VAT rates: 9% and 21%.

"Together with Horeca Vlaanderen, we already took the initiative in 2020, and again in 2024, proposing a clear and feasible solution: just two VAT rates of 9% and 21%, by analogy with the Dutch model at the time for our sector," recalled Matthias De Caluwe, president of the Flemish hospitality federation. A system with two clearly established rates would provide legal certainty and administrative simplification.

This solution presents several advantages in the eyes of experts and part of the majority (N-VA, Les Engagés) because it would avoid distortions of competition between products (such as the debate on ready-made meals). It could potentially generate nearly €1.5 billion, three times the initial reform. Matthieu Léonard, president of the Brussels Horeca Federation, also mentioned the possibility of merging the 6% and 12% VAT rates to obtain a new reduced rate of 8% on all the products and services concerned, including non-alcoholic beverages served within the city limits. "It's absurd to continue selling a bottle of water served at a restaurant table at 21%!" he pointed out . "Furthermore, the effort made by the cultural sector, the hotel industry, and takeaway businesses would be 2% compared to the current rate, and not an excessive doubling as envisaged in the current version."

Political deadlock

In these scenarios, essential goods (basic food, water, energy, public transportation) would not be affected. Only non-essential everyday consumer goods (household appliances, clothing, cars, etc.) would see the price increase. Alternatively, policymakers could even consider reducing the tax rate from 6% to 5% on bread, eggs, meat, fruits, and vegetables. "To encourage healthy eating and lower the cost of household groceries," explains Matthieu Léonard.

The issue remains politically complex. The complexity of the initial proposal stemmed largely from the Reformist Movement's (MR) categorical refusal to accept a general VAT increase, which it perceived as an attack on workers' purchasing power. Isolated on this position, the French-speaking liberal party maintains its opposition to an increase in the nominal rate.

While the objective remains to secure the budget, with Bart De Wever suggesting that the government is still seeking 3 to 4 billion euros in overall savings, the implementation in less than three weeks appears to be in jeopardy. Inter-ministerial meetings are underway, and the matter is expected to return to the cabinet this week.