In Sweden, services performed around one's home, like maintenance, cleaning and repairs are deductible for consumers. This makes the use of undisclosed services (on which no VAT or income tax is paid) much less attractive for consumers and it rewards disclosed labour. Sigrid Hemels, Professor of Tax Law at Erasmus School of Law, argues for an experiment in the Netherlands using the same system, in an opinion piece in the Financieele Dagblad.
Since 2007, Swedish citizens have been able to use a deduction for household services, such as painting, cleaning and renovations. Through this regulation, consumers will immediately receive the tax deduction on their invoice, up to a maximum of € 7500 per person per year. After payment of the invoice, the service provider can reclaim the deducted consumer tax from the Swedish tax authorities. This system allows the tax authorities to simultaneously reward the consumer for hiring disclosed labour and check the entrepreneurs for their VAT payments and taxable profit.
An effective system
The system appears to work well, according to Hemels: “Research by the Swedish Tax Authorities shows a decrease in the number of households that use undisclosed services. The deduction also seems to lead to greater awareness of the adverse effects of undisclosed labour.” Negative consequences of undisclosed work include that the undisclosed service provider is not socially insured, it creates unfair competition for disclosed labour, the market for undisclosed labour is maintained in this way, and the consumer ultimately still foots the bill for government spending.
Opportunities for the Netherlands
Hemels sees opportunities for the Netherlands: “These regulations increase the burden of tax evaders in favour of compliant taxpayers and thus make the tax system more fair. As undisclosed labour decreases and is less accepted, the tax benefit can be reduced. Good monitoring and evaluation of the scheme are therefore necessary. In short: enough reasons for a new cabinet to also start this experiment in the Netherlands.”