Switzerland is under increased international pressure to stay competitive with its taxes. Swiss Bankers Association President Marcel Rohner, writes in a finews.com guest commentary how the upcoming vote to reform withholding tax plays a role in improving the country's standing.
Switzerland's history is characterized by pioneering spirit and entrepreneurship. Of people who dig in, tackle challenges and move Switzerland forward. People who shape the social and economic framework in a liberal way. This has brought us prosperity.
But what about Switzerland's entrepreneurial spirit today when it comes to key economic policy votes? Does the Swiss population have the courage to help important referendum proposals achieve a breakthrough?
Long-Standing Disadvantage
The reform of the withholding tax is one such proposal that will be put to a vote on September 25. It is a bill that will strengthen our country. With a yes vote, we can specifically eliminate a long-standing disadvantage of Switzerland. Today, the Swiss capital market, unfortunately, functions in a very unsatisfactory manner. As an important international financial center, Switzerland is unnecessarily giving away a huge potential.
The reason behind this is the withholding tax on bonds, which other countries do not have. Today, many companies issue their bonds abroad because investors can buy them there without paying withholding tax. This is exactly what the reform would correct. By abolishing the withholding tax on bonds, Switzerland can bring back home the business that has increasingly migrated in recent years to countries such as Luxembourg.
More Jobs, More Tax Revenue
A reform would likely lead to higher value creation, new jobs, and more tax revenue for Switzerland. This is confirmed by the latest study from BAK Economics, which speaks of a positive cost-benefit ratio. For Switzerland as a business location, this would mean that with the reform, so-called «green bonds,» i.e. fixed-interest bonds that finance sustainable projects, could also be issued much more cheaply and increasingly in Switzerland.
Unfortunately, Switzerland is currently lagging in international comparison. According to current data, more than 1,300 such «green bonds» worth a total of nearly 700 billion euros have already been issued in Luxembourg. Switzerland, with around 75 green bonds worth a total of 24 billion francs, is nowhere near keeping up. Reform can change this.
Rising Interest Rates
The public sector would also be able to finance itself more cheaply in the future because interest expenses would be significantly lower following a reform. A federal analysis shows the public sector alone could benefit from a reduction in interest expenses of 60 to 200 million francs. This does not include public service companies such as energy providers, hospitals, and public transport. They, too, would be able to obtain financing on better terms when it comes to important infrastructure projects.
The decisive factor here is that reform would pay off, especially when interest rates rise because that makes issuing bonds within the current withholding tax system even less attractive. This would lead to even more issuance abroad. With rising interest rates, the damage to business and the public sector, therefore, increases without reform. To put it another way: in a high-interest rate environment, the reform is all the more worthwhile.
Strengthening Switzerland
In short, the reform of the withholding tax would strengthen the economy, ease the burden on public finances, and facilitate investments in public services. This is a reform with a sense of proportion because only newly issued bonds will be exempt from withholding tax. For dividends and account interest, well over 90 percent of the withholding tax volume, the structure will remain unchanged therefore keeping the desired safety measures in place.
One thing is clear: Switzerland is coming under increasing pressure in international tax competition. Particularly in this context, the reform of the withholding tax contributes to ensuring that Switzerland remains competitive despite the OECD tax reform and the planned minimum taxation. The reform strengthens Switzerland and once again, calls on the Swiss entrepreneurial spirit.
