A planned 1% cut in the corporation tax rate from next year is expected to cost the state around €38 million annually, Finance Minister Gilles Roth said on Tuesday. Under the plan, the corporate tax rate will be reduced from 17% at present to 16% from 1 January next year, bringing it in line with the international average.
The effective corporate tax rate is in reality higher, as the plans by central government do not have any impact on the rate of a separate corporate tax levied on businesses by local municipalities, which is 6.75% in Luxembourg City.
The government had previously refused to comment on the cost of the cut – as well as the price of a planned change to tax brackets – announced in the prime minister’s state of the nation address in June, with the finance ministry telling the Luxembourg Times at the time that figures would be forthcoming before the summer break.
Also read: Government refuses to disclose cost of new tax measures
The government is expected to lose €38 million in revenues from the corporate tax cut, Roth told lawmakers on Tuesday, according to RTL. However, the finance minister argued that the tax cut could ultimately boost revenues.
Opposition Concerns
Opposition members were sceptical, including Sam Tanson of déi Gréng, who warned against cutting revenue streams at a time when the budget was facing strain from several simultaneous crises. Former Economy Minister Franz Fayot from the LSAP, meanwhile, dismissed Roth’s suggestion that the change would boost income for the treasury.
The government parties’ position on the matter is buoyed by news this week of better-than-expected state finances so far this year – led by a rise in corporate tax receipts.
Also read: Huge rise in corporate tax take swells state coffers
Cutting corporation tax to stimulate growth and increase Luxembourg’s attractiveness as a business hub was among the election pledges of both the CSV and DP parties prior to last year’s poll.
The prime minister’s address last month also included a promise to adjust personal tax brackets by 2.5 wage indexations – or roughly 6% – next year to ensure that taxpayers are not penalised by higher taxes as a direct result of the automatic salary increase that is triggered by inflation. An adjustment for this year – to adapt the brackets by four indexations, or roughly 10% – is expected to cost the state around €180 million every year going forward. The plan to adapt tax brackets further in 2025 would “once again give everyone more purchasing power”, the prime minister said last month.
