consumption tax countries

She was formerly the Director of Research at Civismo, an economic research organization based in Spain. Launch 2021 International Tax Competitiveness Index. In general, any taxes incurred in operating your business (other than federal income taxes) are deductible business expenses. [3] All averages in this report are simple averages, not weighted averages. Sales tax paid on items you buy for your business's day-to-day operations is deductible. The OECD average in this figure shows that these countries as a group get about one-third of their tax revenue from consumption taxes: the US gets about half that proportion of its taxes from consumption taxes. (2014)7, provides a conceptual classification of revenues other than debt. But Prime Minister Abe also made it clear that he will implement a 5 trillion economic stimulus package to counterbalance whatever ill effects might arise from hiking the tax. In a nutshell, income before taxes corresponds to what is usually known as market income (wages and salaries, self-employment income, capital and property income); while income after taxes and transfers corresponds to disposable income (market income, plus social security, cash transfers and private transfers, minus income taxes). Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). OECD releases corporate tax statistics and the 2022 revenue - EY They may be directly tacked onto the cost of goods or services at the register or indirectly built into the product or service's price. The chart shows an example of data discrepancies in tax revenues for Ghana. According to our Index, Switzerland has the best-structured consumption tax among OECD countries. The property tax is levied on the value of an individuals or business property. This means that marginal rates apply only to the portion of taxable income that exceeds the lower income threshold for that marginal rate. Consumption Taxes covers the OECD category 5000 Taxes on goods and services. Actual individual consumption (AIC) consists of goods and services actually consumed by households, irrespective of whether they were purchased and paid for by households directly, or by government, or by nonprofit organizations. Get started, Estimate capital gains, losses, and taxes for cryptocurrency sales The visualization shows how this transition took place. Customs duties collected by EU member states on behalf of the EU are reported at this level. Access to this content in this format requires a current subscription or a prior purchase. Across the OECD, the unweighted average VAT Revenue Ratio (VRR) has remained stable at 0.56 in 2018, suggesting that 44% of the theoretical potential VAT revenue is not collected. The VRR provides a comparative measure of the difference between the VAT revenue collected and what would theoretically be raised if VAT was applied at the standard rate to the entire potential tax base in a pure VAT regime. Today the levels are between half and a third of what they used to be at the highest point. The high consumption tax-to-GDP group in 2018 was entirely composed of European Union (EU) countries, while all countries with low consumption tax-to-GDP ratios were non-EU countries, except for Ireland. Today the corresponding figure is less than half (45%). These taxes may include VAT, sales taxes, excise duties and other fees and charges associated with the registration of a vehicle. As we can see, countries with strong executive constraints collect higher tax revenues, when income per capita is held constant, than do countries with weak executive constraints. All the software and code that we write is open source and made available via GitHub under the permissive MIT license. When citing this topic page, please also cite the underlying data sources. The inconsistencies between sources are often due to differences in methodological choices such as differences in the classification of social security contributions, or the omission of data from taxes collected by local governments. A consumption tax is a tax levied on consumption spending on goods and services. The next visualisation, from Piketty and Saez (2007)19 shows estimated average tax rates in France, the US and the UK, at two points in time: 1970 and 2005. As we can see, the cost of collections dropped, from over 4.5% of the amounts collected in the mid-19th century, to 2% since the middle of the 20th century. The AIC per capita can be considered as an indicator of the material welfare of households. Excise levels for diesel fuel remain lower than those for gasoline in all but five OECD countries. These estimates comes from the International Centre for Tax and Development, and are expressed as a share of GDP. Add country Terms and conditions, features, support, pricing, and service options subject to change without notice. According to our Index, Switzerland has the best-structured consumption tax among OECD countries. This is important because, as the authors of the figure point out, over the same period pre-tax income inequality grew significantly: a few very rich individuals at the very top are accumulating an increasingly large share of national incomes. We have a plan for your needs. We have already pointed out that rich countries tend to collect much higher tax revenues than poor countries. Japan's current 5% consumption tax is among the lowest in the world, roughly on a par with Canada and Taiwan. ), indirect taxes (such as taxes on consumption, sales, trade, etc. On average, 16.1 percent of the total tax revenue collected by the 10 federal or fiscally decentralized OECD countries is raised at the regional or state level. This required states to build tax administration systems, and implement tax withholding at source, in order to effectively raise compliance. On average, OECD and non-OECD countries in North America rely more on corporate income taxes and other taxes than the OECD average and less on social insurance and individual taxes. This gives us an idea of the typical country in that region, at that point in time. The elasticity of taxable income with respect to marginal tax rates: A critical review. That would burden older people who disproportionately own assets accrued during their working years. The other is taxing only income that is spent. To see whether your countrys consumption tax rank has improved in recent years, check out the table below. (PDF) Taxing the Digital Economy through Consumption Taxes (VAT) in The U.S. is an exception in not having a federal consumption tax. This information comes from data on purchasing power parities published by Eurostat today. The visualization provides an overview of revenues from income taxation (specifically taxes on incomes, profits and capital gains) during the period 1980-2017. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. In particular, developed countries today collect a much larger share of their national output in taxes than do developing countries; and they tend to rely more on income taxation to do so. It also relied less on social insurance taxes than the OECD average. The evidence that we have discussed so far is mainly from high income countries. A selection of countries is included by default, but you can add more countries by clicking the The possibility of a new broad federal consumption tax, such as a value-added tax (commonly known as VAT), is an alternative to merely increasing the income tax. A very detailed account of data quality differences can be found in Prichard et al. Post-1995, a decline in the share of total net ODA to GDP was accompanied by higher tax revenues as percentage of GDP. The data shows some cross-country heterogeneity; although relative to revenue from income taxation, heterogeneity in commodity taxation is much smaller, especially among high-income countries. Colombia (6.2 percent), Chile (7.2 percent), the Slovak Republic (10.9 percent), and the Czech Republic (12.6 percent) relied the least on individual income taxes. Estimates comes from the International Centre for Tax and Development and are expressed as share of GDP. The visualization from Besley and Persson (2013)1 tracks a group of 18 countries, in order to show how different taxation instruments became increasingly more common during the 20th century. Approval was partially successful, following selected items could not be processed due to error, http://instance.metastore.ingenta.com/content/publication/152def2d-en, South Georgia and the South Sandwich Islands. Individuals can't deduct other types of consumption taxes, such as excise taxes, if paid on personal-use items. However, the extent to which an individual country relies on any of these taxes can differ substantially. Spain and Belgium also collected a big share of their tax revenue through social security funds, 34.5 percent and 32.7 percent of the total tax revenue. 5, Flora, Peter et al. Other covers the OECD categories 1300 Unallocable between 1100 and 1200, 3000 Taxes on payroll and workforce, and 6000 Taxes other than 1000, 2000, 3000, 4000, and 5000. An important point that should be kept in mind is that these estimates are not directly comparable to those from the Congressional Budget Office discussed above, because they do not take into account government transfers, and rely on different methodological assumptions for example, they do not consider excise taxes (but they do consider estate taxes). Consumption Tax Trends provides information on Value Added Taxes/Goods and Services Taxes (VAT/GST) and excise duty rates in OECD member countries. South Americas share of consumption taxes is also above the OECD average, at 48.5percent. We discuss this additional evidence in the next section. VAT accounts for one-fifth of total tax revenues (20.4%) on average, representing 20% or more of total taxes in 21 of the 36 OECD countries that operate a VAT. These taxes are typically levied in a progressive manner, meaning that an individuals average tax rate increases as income increases. The smallest shares of revenue were from corporate income taxes (9.6 percent) and property taxes (5.6 percent). Although the overall share of taxes on consumption in total tax revenues has remained . Taxes on specific goods and services consist primarily of excise taxes, customs and import duties, and taxes on specific services (such as insurance and financial services). Explore File your own taxes with expert help, Explore File your own taxes with a CD/Download, How do consumption taxes affect your federal income tax return, Individuals can deduct sales taxes as an itemized deduction, Businesses can deduct consumption taxes as a business expense, TurboTax Online: Important Details about Free Filing for Simple Tax Returns, Form 720, Quarterly Federal Excise Tax Return, See The provisional estimates for 2022 presented in this news article are based on GDP and population data for 2022, extracted on 5 June 2023, and the most recent PPPs available. In many countries, consumption taxes make up one of the largest sources of national tax revenue. For example, high tax rates may discourage labor supply; and in the case of very rich individuals, they may even induce migration of talent to countries where the tax burden is lower. This measure, usually known as the top marginal rate of taxation, corresponds to the tax rate that applies to the last dollar of income earned by the rich. African countries have turned to digital services taxes, value added taxes and withholding taxes in a bid to collect revenue from the digital economy to broaden their tax bases. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. The United States raised the least amount of tax revenue in the OECD from consumption taxes, at 17.6 percent in 2019. The mix of tax policies can influence how distortionary or neutral a tax system is. Global Comparison of Consumption Tax (VAT) Rates | Nippon.com The tax base of such a tax is the money spent on consumption. In contrast, income taxes can be more progressive because people pay a higher percentage of their income as their earnings increase. Excise taxes paid on ordinary and necessary business expenses are deductible. The vertical axis shows the relative frequency of taxation instruments within the sample of countries, and the horizontal axis shows time.2 The red line plots the share of countries with income taxation, the blue line plots the share with income-tax withholding, and the green line plots the share with value added taxation. Although the VRR has to be interpreted with care and tax base erosion may be caused by a variety of factors, this VRR estimate suggests that there remains significant potential for raising additional revenues by improving VAT systems performance. Eight out of 37 OECD countries have a federal structure and two OECD countries, Colombia and Spain, have a highly decentralized political structure, which allows them to collect taxes at the regional or state level. As we can see, there is a positive correlation on the aggregate, and European countries are consistently located further towards the top right. 3.1. Taxing the Digital Economy through Consumption Taxes (VAT) in African If you do not wish to provide more detailed feedback, please just click on the Submit button to send your response. Chapter 55, International Handbook of Development Economics, Volume 1. Limitations apply. Direct access to our data from your apps using any programing language. It describes a range of other consumption taxation provisions . It shows a broad negative association: between 1980 and 1995, when foreign aid as a share of GDP was increasing, average tax revenue in relation to GDP decreased slightly. In the OECD nomenclature, consumption taxes (taxes on production, sale, transfer, leasing and delivery of goods and rendering of services) include two sub-categories: general taxes on goods and services (taxes on general consumption including VAT, sales taxes and other general taxes on goods and services) as well as taxes on specific goods and services consisting primarily of excise taxes (as well as customs and import duties and taxes on specific services, such as taxes on insurance premiums and financial services). In the US, the Congressional Budget Office (CBO) produces estimates of the incidence of taxation across the population. Note: This is part of a map series in which we examine each of the five components of our 2021 International Tax Competitiveness Index. OECD Tax Revenue - Sources of Government Revenue, 2021 GDP per capita above the EU average was recorded in 11 EU countries. Indeed, until 1910 less than 10% of national income was collected by these governments through taxation just enough for them to fulfil basic functions, such as maintaining order and enforcing property rights. A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. is the online library of the Organisation for Economic Cooperation and Development (OECD) featuring its books, papers, podcasts and statistics and is the knowledge base of OECD's analysis and data. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. The United States is the only country in the OECD with no VAT. In the period 1920-1980 taxation as a share of national income increased drastically, more than doubling across all countries in the chart. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. The visualization shows the evolution of tax revenues, as a share of national income, for a selection of early-industrialized countries. VAT and international trade - The destination principle, 2. By clicking on the option labelled Relative, you can see the relative importance of the different tax instruments. The Journal of Economic Perspectives, 14(1), 61-82. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. While contributing to GDP, these workers are not taken into consideration as part of the resident population which is used to calculate GDP per capita. Part of this funding may come from charging consumption taxes. After 1980, tax revenues started stabilizing, albeit with marked differences in levels for each country. Reassessing Tax and Development Research: A New Dataset, New Findings, and Lessons for Research. In many developing countries levels are very low and trends have not been persistently going up by a significant margin. We begin this entry by providing an overview of historical changes in taxation patterns, and then move on to an analysis of available data from the last couple of decades, discussing recent trends and patterns in taxation around the world. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. Examples of broader consumption taxes can be found in Europe, where many countries implement national-level consumption taxes referred to as value-added taxes (VATs). [2] OECD, Revenue Statistics OECD countries: Comparative tables, https://stats.oecd.org/Index.aspx?DataSetCode=Rev. The hypothesis supporting this strand of literature is straightforward: foreign assistance may crowd out domestic tax revenues, as it reduces the incentives for policy-makers to pursue politically costly tax collection. By accessing and using this page you agree to the Terms of Use. Congressional Republicans Distort a New Report on the Global Minimum Tax The corporate income tax is a direct tax on corporate profits. Although these estimates are somewhat dated, they do provide a rough idea of taxation patterns by world regions. PDF Brochure: Revenue Statistics 2022 - OECD What Is a Consumption Tax? - TurboTax Tax Tips & Videos OECD: Consumption tax trends 2022 - Regfollower In market economies, consumers and producers change their behavior in response to taxes. Per the most recent data from the OECD (2019),[2] consumption taxes were the largest source of tax revenue for OECD countries. Actual individual consumption (AIC) consists of goods and services actually consumed by households, irrespective of whether they were purchased and paid for by households directly, or by government, or by nonprofit organizations. Specifically, while both average and marginal rates are increasing, average rates are smoother and generally lower. 1325 G St NW The total tax burden for premium unleaded gasoline exceeds 100% of pre-tax prices in all but nine OECD countries. From an environmental point of view, this is peculiar, as diesel consumption in vehicles has a much greater environmental impact than unleaded gasoline, largely due to the significant differences in nitrogen oxides (NOx) and particulate emissions. [6] The only tax-collecting supranational authority in the OECD area is the European Union (EU). The country with the highest reliance on individual income taxes in 2019 was Denmark (52.4 percent), followed by the United States (41.5 percent) and Australia (41.1 percent) (Figure 3 and Table 1, below). Switzerlands VAT is the easiest to comply with among OECD countries, requiring on average only eight hours a year in compliance time. Please select the WEB or READ option instead (if available). As we can see, developed countries collect almost twice as much as developing countries in tax revenue. Also, we can see that developed countries had little change in tax-to-GDP ratios in the second half of the 20th century, where as in developing countries there seems to be a broad negative trend. A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Compared with income taxes, a consumption tax can produce a more stable stream of revenue, and it is relatively easy to administer. Taxes on income can create more economic harm than taxes on consumption and property. Many countries also use reduced rates for other reasons. Source: OECD, Revenue Statistics OECD countries: Comparative tables, https://stats.oecd.org/Index.aspx?DataSetCode=Rev. More generally, this map shows that there is a clear correlation between GDP and tax revenues richer countries tend to collect through taxes a much larger share of their domestic production. Why tax consumption? Among them is the downside of taxing accumulated wealth. The authors approximate the strength of political institutions by calculating the proportion of years since independence (or since 1800 if independence is earlier) that a country had strong constraints on the executive. Goods and Services Taxes: The United States relies less on taxes on goods and services (including both general consumption taxes and taxes on specific goods and services) than any other OECD country, collecting 18 percent of tax revenue this way compared with 32 percent for the OECD. OECD iLibrary While informative for the purpose of cross-country comparisons, these results have to be interpreted carefully, since the before-tax distribution of incomes is already the result of choices made by individuals who take taxes and transfers into consideration. While sales taxes and VATs usually apply to a broad set of goods and services, excise taxes are targeted at specific products. In 2017, the personal consumption expenditures of U.S. households amounted to about $13.3 trillion. North American countries also rely more on corporate income taxes and other taxes than the OECD average. Washington, DC 20005, Tax Expenditures, Credits, and Deductions, Tax Reform Plan for Growth and Opportunity, Location Matters: State Tax Costs of Doing Business, Tax Reforms for Mobility and Modernization, Consumption Tax Policies in OECD Countries, Comparing Corporate Tax Systems in Europe, Comparing Individual Tax Systems in Europe. Now we focus on differences in the composition of tax revenues. As can be seen, most of the countries with particularly low tax-to-GDP ratios are in Africa. The table, from Jha (2008)9, shows differences in tax revenues as a share of GDP for various country groups. The visualization provides an overview of revenues from the taxation of goods and services during the period 1980-2017. Background Bookmark Skip to Policies There are two main ways for governments to collect taxes. Some of the tax havens are tiny countries largely at the mercy of economic forces and powerful governments in London and Washington. Examples of consumption taxes include excise taxes, VAT taxes, sales taxes, and taxes on imported goods. Value-added taxes - Main features and implementation issues, 2.2. Social insurance taxes and individual income taxes were the second and third most important sources of tax revenue in the OECD, at approximately 25percent each. Consumption Tax Trends 2022 - OECD The visualization shows a map of total tax revenues. The plot, from Benedek et al. Measuring performance of VAT: the VAT Revenue Ratio, 2.8. As we can see from the most recent data, at one extreme of the spectrum we have countries such as Cuba, France, Denmark, Norway and Sweden, where total tax revenues are higher than 30%. Please select the WEB or READ option instead (if available). In 2019, 10 OECD countries also collected taxes at the state or regional government level and six of them raised more than 15 percent of their tax revenue at this level of government. After consulting a number of economic indices and confirming an upward trend in the economy, the prime minister went ahead with the decision to implement the tax hike as planned. The data produced by the IMF, the World Bank, the OECD and CEPAL often covers different countries at different points in time; and for those years and countries in which estimates overlap, there are significant inconsistencies. Other types of property taxes include estate, gift, and inheritance taxes, and net wealth taxes. The highest levels were recorded in Luxembourg (38% above the EU average), Germany (19%) and Austria (18%). Ireland: The high level of GDP per capita in Ireland can be partly explained by the presence of large multinational companies holding intellectual property. These changes in behavior can lead to inefficiencies. Norway, for example, has a substantial oil production industry on which it levies a high (78 percent) income tax and thus raises a significant amount of corporate income tax revenue.[1]. Put simply, the before-tax distributions of incomes are likely to be different to the actual distributions of incomes that would be in place if there were no taxes or transfers. 1. Consumption tax figures: Main trends and figures In 2019, Latvia (0.5 percent), Hungary (2 percent), United States (3.9 percent) and Italy (4.6 percent) relied the least on the corporate income tax. Yet cross-country differences are substantial, with declines ranging from about 40% in Denmark and Ireland, to about 8% in South Korea.
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