Deputy Minister of Finance, Mr. Weekers, has presented a study on a single payroll levy to the Lower House. The government’s objective is to have a single payroll levy with one rate, one tax base, one group of individuals, and one data request.
The proposal to introduce a single payroll levy was included in the coalition government’s agreement, and the Tax Agenda includes a commitment to draw up a framework for a simplified system of taxing salaries. One of the main reasons for this is the government’s wish to reduce the size of the public sector and to reduce administrative burdens.
The payroll levies levied on employees include payroll tax, social security contributions, employee insurance contributions, and the income-related contributions to health insurance under the Health Insurance Act. Payroll levies are computed per individual. The single payroll levy introduces a different system whereby a single levy is computed based on the business’ total payroll. Employers can calculate the amount they are required to pay the government by multiplying their total payroll costs by one fixed rate.
One of the consequences of applying a uniform rate to a uniform base is that the contribution thresholds will disappear and therefore no maximum will apply. As a change in government revenue is not intended, the rate applied to contributions will be reduced. As a result, there will be a shift as regards contributions: the contributions paid by employers with a relatively high number of low paid employees will decrease, while the contributions paid by employers with a relatively high number of highly paid employees will increase.
The abovementioned study indicates that the single payroll levy will also lead to a shift of the administrative burden and related costs from employers to individuals and social security agencies, and it accordingly provides for an additional condition in the form of a simplification of both the income tax system and the allowance system.