Taxation of Company Cars in Belgium – Room to Reduce their Favourable Treatment

The labour tax system in Belgium counts numerous tax expenditures and special regimes. The tax treatment of company cars is among the most costly tax expenditures, since the use of a company car as a remuneration component is particularly favourable both for employers and employees. The employee is taxed on an estimated value of the private use of a company car that is considerably less than its real value. For employers, the main tax advantage is that, unlike salaries, the benefit of using a company car is not subject to the regular system of employers' social security contributions. The favourable tax treatment for company cars has a high budgetary cost, accounting for approximately EUR 3.75 billion of revenue foregone (0.9% of GDP in 2016) annually. Moreover, the Belgian company car scheme favours road travel and dilutes the incentives to reduce fuel consumption provided by energy and vehicle taxation. This imposes welfare costs to society by aggravating air pollution and greenhouse gas emissions. Therefore, the favourable tax treatment of company cars in Belgium has regularly been raised in the context of the European Semester. As a way to counter the preferential treatment of company cars, the government plans to extend the scheme to other means of commuting by providing a so-called 'mobility budget'. Rather than having a company car as part of its remuneration package, an employee could opt for a transport budget or an additional net pay. This note discusses the taxation of company cars in Belgium and analyses the extent to which a mobility budget can tackle the negative outcomes of the existing company car scheme. The note also compares the Belgian company car scheme with that of other Member States. It finds that Belgium provides relatively high subsidies for the private use of company cars, which weigh on the efficiency and revenue potential of the Belgian tax system. In light of these findings, the note suggests a number of ways how company car taxation in Belgium could be improved. First, the private use of a company car could receive the same treatment for social security purposes as other forms of remuneration. Furthermore and for the sake of neutrality, it could be considered to increase the taxable benefit of a company car and to include a distance component. Additional revenue generated by taxing company cars in a more neutral way could be used to decrease labour taxes for those most affected by the adjustment of the tax system.