The Dutch income tax system requires a complete overhaul in order to be simplified, a report commissioned by the government has recommended.

Taxes on savings

The two most radical proposals by the report are to reduce the tax on savings and to cut the number of tax bands from four to two.

At the moment the tax on savings is applied to assets which make a capital return of 4 percent, but the reality is that the return lies at the 2,4 percent mark. This where the report suggests lowering the rate to.

Tax bands

At the moment there are four bands of tax in the Netherlands but, as part of the simplification process, the report suggests that this be changed to just two. Those earning more than 62.500 euros should be taxed at the higher rate of 49 percent, while those under should be taxed at 37 percent.

This would mean that some 12 million people in the Netherlands would be taxed at the lower rate of income, although the report also states that entrepreneurs with their own business should pay more tax.

Effects of changes

The overall effect of the changes on households would be limited, the report states. However, the Central Plan Bureau (CPB) has intimated that the changes would create 140.000 more jobs.

Source: Volkskrant