10 12 2018

OECD States Tapped VAT, CIT To Achieve Record Revenues In 2017

Last year, the tax burden in OECD countries reached its highest level recorded, at 34.2 percent of gross domestic product, up 20 basis points on 2016, largely due to increasing taxes on personal consumption and companies.

The 2018 edition of OECD's annual Revenue Statistics, released on December 5, 2018, points out that this is higher than earlier peaks of 33.8 percent in 2000 and 33.6 percent in 2007.

An increase in tax-to-GDP levels was seen in 19 of the 34 OECD countries that provided preliminary data for 2017, while tax-to-GDP levels fell in the remaining 15 countries. Tax-to-GDP levels are now higher than their pre-crisis levels in 21 countries, and all but eight (Canada, Estonia, Hungary, Ireland, Lithuania, Norway, Slovenia, and Sweden) have experienced an increase in their tax-to-GDP ratio since 2009.

Value-added tax continues to make up the lion's share of consumption taxes collected, reaching an all-time high of 6.8 percent of GDP in 2016 (the most recent year for which data is available). Value-added taxes made up 20.2 percent of the total tax mix.

After experiencing an upward trend since the economic crisis, standard VAT rates stabilized at 19.3 percent on average in 2014 and have remained at this level since. Ten countries now have a standard VAT rate above 22 percent, against only four in 2008. Two countries (Greece and Luxembourg) increased their standard VAT rate between January 2015 and January 2018, while two countries (Iceland and Israel) reduced their standard VAT rate over this period.

With less scope to raise already relatively high standard VAT rates, countries are increasingly implementing or considering base broadening measures to protect or increase VAT revenues. This includes increasing some reduced VAT rates, limiting or narrowing their scope, and curbing VAT exemptions. A growing number of tax authorities have implemented or are considering implementing measures to tackle the challenges of collecting VAT on the ever-rising volume of digital sales, including sales by offshore vendors, in line with new OECD standards.

Revenue statistics also contains a Special Feature that measures the convergence of tax levels and tax structures in OECD countries between 1995 and 2016. The Special Feature highlights ongoing convergence across the OECD toward higher tax levels, with greater reliance on corporate income tax (CIT), VAT, and social security contributions, and a slight downward shift in personal income taxes.

CIT, as a share of total taxes, has reached its highest level since the global economic and financial crisis, increasing on average from 8.8 percent in 2015 to nine percent in 2016. CIT revenues are still lower than their peak in 2007 (11.1 percent of total revenues), but are now higher than at any point since 2009 (8.7 percent). Between 2015 and 2016, personal income tax revenues decreased from 24.1 percent to 23.8 percent of total tax revenues.

The increase in the average share of CIT was driven by increases in revenues from CIT in 23 countries in 2016, while the fall in personal income tax was seen in 20 countries.

In 2017, the largest increases in the overall tax-to-GDP ratio relative to 2016 were seen in Israel (1.4 percentage points, due to tax reforms which increased revenues from taxes on income) and in the United States (1.3 percentage points; due to the one-off deemed repatriation tax on foreign earnings, which increased revenues from property taxes). Nineteen countries had increases but no other country had an increase of more than one percentage point.

Ten OECD countries decreased their tax-to-GDP ratios in 2016, relative to 2015, with the largest decreases observed in Austria and Belgium. There were no decreases of more than one percentage point.