Tax reform starts with social issues


Future-proofing the tax system

It is not tax issues, but social issues, that should be the starting point for reforming the tax system. That is PwC's message to a new government faced with the challenge of improving and future-proofing the current tax system.

In May 2020, the Dutch Ministry of Finance sent over 160 "building blocks for a better tax system" to the Dutch House of Representatives, with the aim of presenting detailed policy options to a future government. This Building Blocks Report is based on a number of challenges in the current system. These include, for example, the impact of the ever-increasing tax burden on labour for working people, the rise of flexible and platform economy and the failure to adequately price climate and health damages.

The formation of a new Dutch government must result in greening the tax system

PwC recognises all of the problems but feels that the report could have framed taxation more as a way of solving social problems and financing their solution. Marc Diepstraten, chair of PwC's tax practice: "In our view, taxation has a subservient rather than a leading role. Reforming the tax system therefore requires a broad, societal perspective, from which to consider how taxation can help in finding a solution."

A good example of such an important social issue is tackling climate change. "Greening taxes should result from the formation of a new government, otherwise momentum is lost," says Diepstraten. He points to the proposals from the tax think tank Ex'tax to shift taxes from labour to the consumption of raw materials and consumables. PwC has endorsed these proposals. The chair of the tax practice thinks it is time for a different vision of taxation. "We are seeing a clear shift in the business community from a focus on shareholder value to a broader stakeholder value. This is reflected in tax strategies. Business owners are aware of their role in society. There is still a long way to go, but the days when companies primarily aimed to pay as little tax as possible are long gone for the largest group. COVID-19 pandemic has accelerated this process even further."

Fundamental reconsideration needed during formation of a new government

Diepstraten: "We are probably facing a complicated coalition-forming process due to the fragmentation of the political landscape. Part of the process is likely to be shaped by the approach to taxation. In other words, parties want to see their views reflected in tax measures. And this can make things even more complicated."

Moreover, he warns that parties to such negotiation processes tend to lose sight of the bigger picture. "Then there will be discussions about the corporate tax rate or the extension of the first tax band, for example. But there needs to be a fundamental reconsideration of what a future tax mix should look like: what do you want to tax and why, and ultimately: what will it deliver in terms of funding collective expenditure? We are at a moment in time to make fundamental choices."

Investing in implementation

Anyone who talks about reforming the tax system at this time cannot avoid the question of how this should be implemented. "In terms of implementation, there is no longer room for manoeuvring", says Marc Diepstraten. We are in a catch-22 situation: on the one hand there is a widely shared desire to reform the tax system, while on the other hand there is the realisation that the Dutch tax authorities cannot implement this at the moment." PwC believes that the government has no choice but to invest heavily in implementation, both in systems and people. Diepstraten: "Administrators and politicians have to be transparent about this and must debate the issue openly. Investing in implementation is politically unpopular, but we are in a situation where the tide is turning. We also need to have a basis for the implementation of a future tax system."

Roadmap towards a good and robust tax system

We want to give politicians and policymakers a roadmap towards a well-founded and robust tax system. We will do this by identifying the major societal challenges and then linking them to fiscal themes. This provides a basis for determining which problems should be tackled first and which fiscal resources can support this (Step 1: prioritisation). Next, the various policy choices will have to be considered based on fundamental legal principles (Step 2: testing against a legal assessment framework).

Step 1: Setting priorities based on five urgent social issues

PwC has developed a framework (ADAPT) that describes five urgent global issues facing governments, businesses, organisations and individuals. One by one, we show how a tax system can help solve each issue. Based on their election manifestos, we go on to examine which specific proposals political parties have broadly identified and to what extent these touch on the five social issues.

Five urgent social issues and their consequences

The gap between rich and poor is widening, while the middle class is gradually disappearing.  This widening income and wealth inequality increases inequality of opportunity while reducing social mobility and may lead to regional inequalities.

A good tax system can be instrumental in redistributing both income and wealth. The corresponding fiscal themes that can do something about this are:

  • Balancing the tax burden between labour and wealth.

  • Differentiating between corporate wealth, investments and savings when setting tax rates.

  • Equalising treatment of single-earner and multiple-earner households.

In the election manifestos, we see the following widely supported proposals that address this issue:

  • Reduce tax on labour.

  • Increase tax on profits.

  • Adjust box 3 levy.

  • Housing market: tax deduction on mortgage interest and landlord tax.

  • Tackle bogus self-employment.


Technology and climate change are disrupting the way we live and function as individuals, organisations and societies. This leads to the emergence of new business models (platform economy) and the disappearance of traditional jobs as a result of automation and robotisation. It also leads to the disappearance of borders and impending scarcity of production resources and raw materials.

A good tax system can mitigate negative consequences of disruptions and stimulate the positive ones. The corresponding fiscal themes that can do something about this are:

  • Reducing the information gap of the tax authorities.

  • A greater focus on the negative impact of flexibilisation on the labour market.

  • A fundamental rethink of the corporate tax base.

  • Pricing of polluting behaviour and encouraging sustainable innovation and investment.

In the election manifestos, we see the following widely supported proposals that address this issue:

  • Introduce a tax on digital services (digitax).

  • Introduce a carbon tax at European level.

  • Introduce an airline tax.

  • Increase VAT (e.g. on airline tickets).

  • Work at global and European level on new forms of profit allocation and new concepts of fiscal nexus that are in line with modern business models (such as the platform economy).


Demographic pressure on businesses, social institutions and the economy is increasing. For example, we see that the pension system and healthcare system are under pressure due to decreasing contributions and increasing healthcare costs. But the fact that young people are over-represented in flexible contracts and consumption patterns are changing also creates pressure.

A good tax system ensures that the consequences for an ever-longer-living population remain affordable, while promoting solidarity between generations. The corresponding fiscal themes that can do something about this are:

  • Balancing the tax burden between labour and consumption.

  • Effective tax burden on pension income (including reconsideration of special exemptions).

  • Differentiating between corporate wealth, investments and savings.

In the election manifestos, we see these widely supported proposals that address this issue:

  • Reduce VAT on healthy products, such as vegetables or fruit.

  • Increase VAT and excise tax on tobacco and high calorie foods.

  • Upgrade the pension system.

  • Lower state pension age.


The international consensus is crumbling as nationalism and populism grow. This can be seen from the fact that social contrasts are increasing, economic growth no longer leads to greater well-being for everyone and competition between countries is intensifying with more protectionism and nationalism. We are also seeing the impact of globalisation - more cross-border movements of capital, goods and people - and more attention to everyone getting a fair share when it comes to contributing to society through taxation.

A good tax system can strengthen people's willingness to pay tax. It is important that the tax system is perceived as fair.

The corresponding fiscal themes that can do something about this are:

  • Effective tax burden on each single or multi-person household.

  • Increasing the (fiscal) competitiveness of the Netherlands, e.g. by simplifying corporate taxation.

In the election manifestos, we see this widely supported proposal that addresses this issue:

  • Reduce effective tax burden on single earner households compared with dual earners.

Trust in institutions and technology (personal and digital security) is declining. There are calls for more transparency and accountability from governments and businesses and there are too many complicated and frequently changing regulations.

A good tax system must be understandable, predictable, workable and, above all, enforceable for individuals and businesses. The corresponding fiscal themes that can do something about this are:

  • Modernising horizontal supervision, which can strengthen the relationship between the tax authorities and taxpayers.

  • Transparent tax laws, regulations and policies.

  • Increasing the enforceability of tax legislation.

In the election manifestos, we see these widely supported proposals that address this issue:

  • Simplify or abolish the benefits system.

  • Adjust box 3 levy.

  • Increase tax on profits.


What stands out in the proposals of political parties?

Shifting the tax burden from labour to pollution

There is widespread interest in reducing the tax burden on labour and increasing taxes on pollution. It’s effect is also recognised in the report Delta Plan Taxes for a Circular and Social Economy by the tax think tank Ex'tax. This think tank argues for a shift from taxing labour to increasing taxes on pollution and the consumption of natural resources. According to the report, this shift could boost employment, increase sustainable growth, lower emissions and reduce dependence on imports.


The proposed measures can help reduce Asymmetry and mitigate the negative impact of Disruption due to climate change and environmental pollution. However, we have noted that the desired behaviour is increasingly being encouraged by the introduction of tax-raising measures, particularly where "green" production and, to a lesser extent, consumption, is concerned. The psychological effect may be that people do not perceive this as encouragement, but as punishment. This in turn undermines trust in the government as a partner in society (Trust). It will therefore be necessary to stay focused on balancing the tax mix.

Equal taxation of "flexible" and "permanent"

There is widespread support among the political parties for measures to promote fair competition between workers by equalising the tax burden on the various forms of employment (e.g. self-employed, working as an employee, working through a business or a private limited company).


Increasing flexibilisation of employment relationships, partly as a result of a growing platform economy, contributes to the competitiveness of the Netherlands. Fiscal measures to counteract the negative impact of flexible working (such as increased risk of unemployment, being under-insured for social security, not accruing pension) and to create fairer competitive positions between the different forms of employment help to mitigate the negative consequences of Disruption without necessarily detracting from its positive impact.


Increase in profit tax

Many political party manifestos express a desire to increase the rate of profit tax.


  • A tax increase undermines legal certainty (see Trust): within one term of government, it was decided to reduce the corporate tax rate to 21 percent, increase the not-yet-introduced 21 percent to 21.7 percent and then keep the 25 percent rate in the 2021 Tax Plan. This provides no legal certainty for companies and makes the Netherlands unattractive as a country to set up a business. Another example is the proposed abolition of the dividend tax, subsequently the maintaining and extending of its scope, as well as the bill introducing an exit tax (boomerang effect).

  • Tinkering with the corporate tax rate could be regarded as treating the symptoms, not the illness. On the other hand, it can help to generate a general feeling that the tax system is fair (Fairness) and therefore make a positive contribution to people's willingness to pay tax, and as such heal divisions (Polarisation) in society.

  • What is lacking across all the parties is a vision of a balanced mix of different taxes to pay for collective spending, a mix that optimises the economic distortions of taxation.

  • For that matter, we also see the lack of a more fundamental and coherent vision for a sustainable redesign of income and corporate taxation. This could include an in-depth exploration of a dual income tax system and a corporate tax based on cash flow or a common European corporate tax system based on commercial profits.

Reform or abolish the benefits system

The reform or abolition of the benefits system is put forward by many political parties.


This is unsurprising given the recent affair surrounding childcare benefits. On the one hand, a tax system must be fraud-proof and verifiable by the tax authorities. On the other hand, there must be a greater focus on making it possible for individuals and businesses to actually be compliant. Finally, schemes must reach the target group. We therefore advocate a broader focus on simplifying all tax laws and regulations. In addition to the benefits system, there are other examples of schemes that are impossible to follow and have become practically unworkable. These include the owner-occupied home scheme, income-related tax credits and the liquidation loss scheme.


Relationship between government and business

Based on the election manifestos, political parties seem to lack interest in the consolidation and further building of Trust between government and business. Of course, this trust must come from both sides. The government should invest in reducing the information gap of the tax authorities. They could also make an important contribution to restoring confidence by modernising horizontal monitoring. Conversely, this brings with it the responsibility for companies to implement tax governance frameworks. Another contribution to mutual trust could be a (preferably compulsory) code of conduct for professional tax advisors.

Step 2: Testing policy choices against fundamental legal principles

After priorities have been set according to the above framework, legislation and policies need to be tested against some fundamental legal principles to ensure authority and support. The following principles - in no particular order - are crucial to the creation of a balanced, effective, fair and enforceable tax policy:

  • Fairness: the tax is perceived to be fair by as wide a group as possible. This includes the ability-to-pay principle, the profit principle and the principle of equality; 

  • Efficiency: the purpose of the law is achieved (insofar possible) without excessive costs, effort and harmful side-effects;

  • Neutrality: decisions taken by individuals and companies are not driven by taxation, unless a conscious choice has been made to use it to change behaviour (e.g. taxing polluting behaviour in order to curb it);

  • Simplicity: individuals and businesses must be able to understand the tax consequences of legislation and their actions;

  • Certainty: the tax system must provide clear rules for individuals and businesses. Policies must be consistent and predictable while minimising the risk of abuse;

  • Workability: the tax system can be applied in practice without high costs for individuals or the government.

"With the above observations, we want to give politicians, policymakers and individuals an insight into the choices that need to be made to achieve a well-founded, robust reform of our tax system in the long term and the considerations that, in our view, play a role in this", concludes Marc Diepstraten. 

"Society wants more focus on 'fair share' when it comes to contribution to society through taxation."

Marc Diepstraten, Chair, PwC tax practice

Contact us

Marc Diepstraten

Marc Diepstraten

Partner, PwC Netherlands

Tel: +31 (0)65 317 73 03

Edwin Visser

Edwin Visser

Partner, PwC Netherlands

Tel: +31 (0)62 294 38 76

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