Heinen struggling to hit deadline for capital gains tax reform

Finance minister Eelco Heinen is in a race against time to introduce a new capital gains tax system by his promised deadline of 2028, financial institutions have warned.

Heinen is under pressure from right-wing opposition parties JA21 and SGP to replace the current income tax regime as quickly as possible as part of the deal to pass next year’s budget.

The minister also needs to plug a €7 billion hole in the finances after left-wing parties Pro and Volt forced the government to drop its planned cuts to social security as the price for their support. The minority government needs the votes of at least two opposition parties in parliament to pass legislation.

Heinen said 2028 could be achieved with “the maximum stretch from everyone”. But banks and the Council of State, which advises the cabinet on the legal implications of its bills, cast doubt on his timetable when asked by NOS.

The Council of State said it was “impossible” to have its analysis ready by next Monday, October 12, so that parliament can debate the bill next week. A spokesman said October 19 was the earliest realistic date.

The Dutch banking association NVB said its members need time to adapt their IT systems so they can pass the relevant details of their customers’ income to the tax office.

Risk of fraud

If customers have to provide the information themselves it increases the risk of delays, inaccuracies and fraud, the banks have warned.

The tax office is also under pressure to update its systems to deal with other reforms, such as the introduction of compulsory work incapacity insurance for people who are self-employed.

Changing the income tax method at the same time would be likely to delay the insurance plan by a year, civil servants told NOS.

Every year that the cabinet delays the overhaul of the income tax system is costing the government an estimated €3.5 billion in lost revenue.

Assumed gains

Heinen’s latest draft does not explain how he plans to compensate for the income lost during the transition to capital gains tax, which will only raise tax on assets and investments when they are sold.

The current “box 3” method charges taxpayers on their assumed gains from their assets every year, but the Supreme Court struck out this system in 2021 because it was unfair on savers whose wealth was held in low-interest accounts.

Heinen included a proposal to lower the thresholds for the “box 3” wealth tax as a stopgap measure in his submission to the Council of State, but parliament has already indicated it does not support this reform.