“More money in your pockets”: Canada’s “tax holiday” leaves Belgium wanting

Canada will introduce a “tax holiday” during the holiday season. Objective: to ease tax pressure, boost consumption and strengthen purchasing power. A Christmas present with hidden defects? In Belgium, the measure would in any case be impractical from a budgetary… and legal point of view.

Ta(x)barnak! Canadian Santa Claus seems to be in a generous mood this year. He came up with a… temporary tax abolition during the end-of-year holiday period. A surge of generosity or dubious populism?

Last week, the government of the country with the maple leaf announced a measure aimed at reduce the tax burden on households. With a rather telling official bill name: “More money in your pocket.”

The goods and services tax (GST) as well as the harmonized sales tax (HST), the equivalent of Belgian VAT, will be eliminated from December 14, 2024 to February 15, 2025. The project concerns a wide range of products, often popular during the holidays: clothing, video and board games, toys, books, food, catering, etc.

Businesses in Canada will therefore have to operate several changes in their sales systemincluding checkout settings. It remains to be determined, however, which specific products will fall within the scope of this giant discount. The measure will undoubtedly have significant impacts on corporate tax management.

Abolition of tax at Christmas: 100 to 260 dollars per family

Canada’s Department of Finance estimates that eliminating the GST and HST “will provide a federal tax holiday of $1.6 billion.” Thus, figures the administration, a family that spends $2,000 on eligible products would save $100 to $260 depending on the state. In essence, therefore, the State loses, but economic activity is boostedwith, in view, direct benefits for consumers and businesses.

Would this “Christmas magic” be applicable to Belgium? “I first thought it was a joke,” says Edoardo Traversa, professor of tax law (UCLouvain, Arteo Law), when we tell him about the Canadian project. “In Belgium, this measure would be both illegal, impractical and extremely damaging from a budgetary point of view. For the consumer too, the effect would be completely random,” he judges.

Removing the tax: complex and unrealistic

And in fact: Belgium could not leave the European framework as it wishes. The one regulates the application of reduced rates et, from a stronger of what we call “0 rates”. In fact, Belgium must therefore apply VAT to a wide range of products. For some of them, each EU member country has room for maneuver, but not to the point of going down to 0%. “We could imagine a modification unanimously by the Member States, but that seems very unrealistic,” doubts Edoardo Traversa.

From an administrative point of view, the measurement would also be very complex to integrate into the billing process. “The decision would only make sense for companies if they continue to be able to deduct the VAT they paid to their suppliers,” believes the tax expert. In Canada too, we are witnessing an outcry. “This measure will place an administrative burden on companies which only have 23 days to set up their system without explanatory notes to guide them, denounces a Canadian tax firm, which lists several predictable inconveniences. This will be particularly difficult for small, local businesses who may have less sophisticated POS systems and limited access to specialist tax advisors.”

The question of the right to business deduction therefore appears to be a major obstacle. A second barrier would be added with the issue of the demarcation between the products covered by the abolition of VAT and the excluded products. “The Canadian project is totally crazy and populist,” condemns Edoardo Traversa. A myriad of issues arise at very short notice, with a potential nest for recourse.”

VAT, vital for the State

Budgetarily, above all, the impact would be colossal for the Belgian Stateall during a period of high consumption. He would lose considerable tax revenue. “It’s a beautiful dream that seems unattainable in Belgium given its budgetary situation,” says Isabelle Schuiling, professor of marketing at UCLouvain. Canada has a budget deficit of 1.5% of GDP, while Belgium is close to 5%.

In Belgium, VAT weighs 30 billion euros. It represents the second largest tax revenue behind personal income tax (IPP). The value added tax, for example, finances all community skills (education, culture, health policy). “Between the risk of creating a hole in the financing of social security or allowing people to buy their Christmas turkey a little cheaper, the right choice seems obvious,” smiles Edoardo Traversa.

However, the measure seems positive for businesses, attractive for consumers and could increase purchases considerably. “But, in this case, it is the State which paysrecalls Isabelle Schuiling. Unlike sales or Black Friday, during which companies themselves lower their profit margins.”

Unclear benefit for the consumer

Selon Edoardo Traversa, the benefit remains unclear for the consumer because the price remains freely set by the seller. “It is not because we remove VAT that the price will automatically decrease by 21%, 12% or 6% (Editor’s note: the different VAT rates applied in Belgium, depending on the area). In case the seller wants to maintain the same price and keep the difference in his pocket, he could very well afford it, he points out. A reduction in VAT is not a gift to the consumer, but a gift to businesses.”

The debate is furthermore find out if reduced rates on food are really beneficial for the consumer. “And what if the money cannot be used better,” asks the tax expert. If we really want to support consumption, the simplest solution remains to enhance the income of the population, particularly low wages. Because when we lower VAT, we lower it for everyone, even for those who earn 10,000 euros per month.”

Isabelle Schuiling notes that if the measure were applied, people would logically make a maximum of purchases over the two months. “But it would inevitably cause a very significant drop in sales before and after this period.»

From a logistical and industrial point of view, finally, the idea seems equally daunting. “It would be up to industrialists to change their packaging and implement special logistics for barely two months. Which could be more costly than expected.”

Clearly, in geography as in taxation, an ocean separates Belgium and Canada. The key is not to drink the “câlisse” down to the dregs.