On the second of December 2024, the Council of State has advised the government to reconsider its proposed Box 3 tax reform, intended to take effect in 2027. The plan, which seeks to tax actual returns, raises serious concerns due to its complexity and potential impact on taxpayers and the Tax Authority.
Key issues highlighted by the Council include:
- Increased complexity and burden: Taxpayers would face a higher administrative load, including detailed asset comparisons, affecting 1.6 million individuals.
- Resistance to taxation on unrealized gains: Taxing unrealized value changes and personal property use could erode public support.
- Execution challenges: The Tax Authority warns of significant difficulties in implementing the proposal.
- Lack of cohesive strategy: An overarching vision for taxing wealth is missing, limiting the proposal’s effectiveness.
- Budget neutrality limits flexibility: Strict adherence to maintaining revenue neutrality restricts exploring better alternatives.
The Council suggests considering simpler alternatives, such as a flat-rate system or a capital gains tax, alongside options like adjusting taxes in Box 1 and Box 2 or revisiting inheritance and gift taxes. It advises the government to first establish a comprehensive strategy for wealth taxation before advancing with a new Box 3 system.
Whether the government will adopt these recommendations remains to be seen.
