The Belgian Arizona government appears increasingly cornered over its controversial attempt to revive tax breaks for plug-in hybrid vehicles in corporate fleets. As it becomes clear that the proposed measures likely breach earlier commitments Belgium made under the EU’s post-COVID-19 recovery programme, the penalty for the revived incentive could be costly. Not a favorable outlook amidst a swelling governmental budget crisis.
The coalition intended to restore full or nearly full tax deductibility for PHEVs starting in 2026, aligning their fiscal treatment with that of fully electric vehicles and reverting to the previous framework. Plug-in hybrids that emit less than 50g CO₂/km would benefit from up to 100% deductibility in 2026, which would slightly decrease to 95% in 2027. Even “fake hybrids”—vehicles emitting over 75g CO₂/km—would qualify for up to 75% deductibility.
Sticking to its guns
These proposals effectively reverse the fiscal direction established by former Finance Minister Vincent Van Peteghem (CD&V). He had been gradually eliminating tax benefits for PHEVs since mid-2023, with the goal of a complete phase-out by 2028. This policy was in line with Belgium’s commitment to the European Union to restrict tax advantages for company vehicles to zero-emission models, as part of the Recovery and Resilience Facility (RRF).
The European Commission now firmly sticks to its guns and warns that any backtracking on this commitment would result in financial consequences. More than €1 billion in green mobility investments and €282 million in REPowerEU grants could be at stake. Under EU regulation, failure to meet agreed reforms can lead to suspended payments or even clawbacks of funds already disbursed. That’s a tough armwrestle.
Undermining progress
EV Belgium, the nation’s electric mobility advocacy group, reiterated this caution, stating that investing in hybrids hampers progress toward decarbonization. “It is illogical to invest public funds in outdated technology,” remarked Director Philippe Vangeel. “Public support should be directed towards sustainable, future-oriented solutions such as the development of charging infrastructure.”
The office of current Finance Minister Jan Jambon (NV-A) officially asserts that “confidential discussions” are ongoing with the Commission, as reported by De Tijd. The newspaper also disclosed that Jambon’s office is exploring the possibility of narrowing the incentive to a specific target group: the self-employed.
This was also the original aim of reinstating the PHEV tax break: to assist hundreds of thousands of self-employed individuals and SME owners in transitioning from older petrol and diesel company vehicles to more environmentally friendly options. However, the media outlet Fleet.be indicates that sources close to the Minister suggest that European pressure has already led the government to scrap the component for plug-in hybrid deductibility from the corporate income tax framework.
Falling market share
However, officially, a final decision has yet to be reached. Currently, the government’s choices are limited: proceed and risk EU penalties, or adjust the tax reform to comply with existing commitments, essentially continuing Van Peteghem’s approach.
In the meantime, PHEV sales in Belgium continue to decline, with their market share dropping from 16.1% to 6.7% this year, according to industry group Traxio. A slight recovery is anticipated if the tax plan is approved, but with uncertainty prevailing, such a revival now seems less likely than ever.
The future of Belgium’s plug-in hybrids hangs in the balance, but the outlook has never appeared more bleak since the Arizona government first proposed the idea. Given that car policies have already been shaped around an EV-focused strategy, it is questionable whether the reversal would be regretted.
