It is often believed that to increase tax revenue, taxes must be raised. Yet it is possible to increase revenue by lowering taxes! Excise duties are a good example; by lowering taxes on certain products, consumers are discouraged from buying them abroad, which increases consumption in Belgium and therefore … revenue!
1. A major fiscal and economic issue
Belgium faces a structural problem linked to cross-border purchases. While this phenomenon primarily affects heavily taxed products such as fuel, tobacco and alcohol, it also concerns everyday consumer goods. Attracted by sometimes significant price differences with France, Luxembourg, the Netherlands or Germany, many Belgian households shift part of their spending outside national territory. This behaviour deprives the State of significant tax revenue, weakens local trade and puts pressure on employment in border areas.
2. Tax losses linked to excise duties
Excise duties are an essential source of funding for the State. In 2022, they generated approximately €5.2 billion from fuel, €3.5 billion from tobacco and €1.1 billion from alcohol. Yet a significant share of consumption escapes Belgian channels.
For tobacco, annual consumption is estimated at around 6 billion cigarettes. Current tax revenue is close to €3.5 billion, but around 15% of consumption takes place abroad. This represents a loss of between €500 and 700 million per year.
For fuel, the average price gap of 15 to 20 cents per litre with Luxembourg results in an estimated loss of between €400 and 600 million per year, or nearly 10% of domestic sales.
For alcohol, the situation is more nuanced, but the losses are also significant, estimated at between €100 and 200 million, particularly for heavily taxed spirits.
In total, the tax losses on excise duties due to cross-border purchases can be estimated at between €1 and 1.5 billion per year.
3. Everyday consumer goods: a silent leak
Cross-border purchases also concern everyday consumer goods. In certain border municipalities, up to 30% of households regularly do their shopping abroad. Nationally, it is estimated that €1.5 to 2.5 billion in annual spending on food and consumer goods is thus “relocated”.
With a standard VAT rate of 21%, this corresponds to a direct loss of €315 to 525 million in VAT each year for the Belgian State. To this must be added indirect losses: less activity for Belgian supermarkets and shops, therefore less corporate tax, social contributions and local economic impact.
If Belgium managed to bring back just 25% of this spending, through more competitive taxation or a targeted VAT reduction on certain products, this would represent €400 to 600 million in additional turnover for Belgian retailers, or €80 to 120 million in additional VAT.
4. Why a targeted cut can increase revenue
Excessive taxation can paradoxically reduce revenue when consumers shift their purchases elsewhere. Conversely, a targeted cut in excise duties can narrow the price gap with neighbouring countries and bring back some of that consumption.
Tobacco
A 10% cut in excise duties (around €0.60 per pack) would mechanically cost €350 million in current domestic sales, but would allow around €300 to 350 million to be recovered by bringing back half of the purchases made abroad. The move would therefore be budget-neutral, or even slightly positive.
Fuel
A cut of 5 to 6 cents per litre would reduce the gap with Luxembourg and allow around half of the lost sales to be recovered. This would represent €250 million in additional revenue (including excise duties and VAT).
Consumer goods
A targeted VAT cut (for example on a basic food basket) could bring back 25% of purchases made abroad, or €80 to 120 million in additional VAT each year.
5. Positive indirect effects
Beyond the direct budgetary effect, such a policy brings other benefits. Bringing part of consumption back into the legal circuit reduces the size of the black market, lowering enforcement and control costs. Border shops regain competitiveness, supporting local employment and investment. Finally, more balanced taxation strengthens the social acceptability of taxes: citizens perceive taxation as less punitive and are less inclined to seek alternatives abroad.
6. Conclusion: a tax system to rethink in an open market
Belgium cannot ignore the reality of an open European market where borders are easily crossed. By seeking to maximise revenue through high excise duty rates, the State actually loses a considerable share of its income. Conversely, a targeted and intelligent reduction in excise duties, combined with close attention to VAT gaps and retail prices, would make it possible to recover between €500 million and €1 billion in additional revenue per year. This choice would strengthen public finances, the local economy and the effectiveness of tax policy alike.