(photo credit: INGIMAGE / ASAP)
Tax burdens and revenue collection in advanced economies are reaching record levels not seen since before the global financial crisis, but the tax mix continues varying widely across countries, according to new OECD research recently published.
The OECD’s “Revenue Statistics 2014” shows that the average tax burden in OECD countries increased by 0.4 percentage points in 2013, to 34.1 percent, compared with 33.7% in 2012 and 33.3% in 2011. The tax burden is the ratio of total tax revenues to GDP.
According to the OECD, the average tax burden rose through the 1990s, to a peak OECD average of 34.3% in 2000. It fell back slightly between 2001 and 2004, but then rose again between 2005 and 2007 before falling back following the crisis.
In 2013, the tax burden rose in 21 of the 30 OECD countries for which data is available, and fell in the remaining nine. The number of countries with increasing and decreasing ratios was to the same as that seen in 2012, indicating a continuing trend toward higher revenues.
The largest tax increases in 2013 occurred in Portugal, Turkey, Slovak Republic, Denmark and Finland. The largest falls were in Norway, Chile and New Zealand.
How does Israel compare – income taxation
Israel ranked 24th out of 34 member countries in terms of the tax to GDP ratio in 2012 (the latest year for which tax revenue data is available for all OECD countries). In that year Israel had a tax to GDP ratio of 29.6% compared with the OECD average of 33.7%.
The structure of tax receipts in Israel compared with the OECD average is characterized by:
• Higher revenues from taxes on payroll, property and goods and services.
• A lower proportion of revenues from taxes on income, profits and gains and social security contributions.
The OECD’s annual Revenue Statistics report found that the tax burden in Israel increased by 0.9 percentage points from 29.6% to 30.5% in 2013. The corresponding figure for the OECD average was an increase of 0.4 percentage points from 33.7% to 34.1%. Since the year 2000, the tax burden in Israel has declined from 35.6% to 30.5%. Over the same period, the OECD average in 2013 was slightly less than in 2000 (34.1% compared with 34.3%).VAT and consumption taxes
OECD general statistics show a strong increase in standard value-added tax rates over the past five years: The OECD average standard VAT rate reached an all-time high of 19.1% in January 2014, up from 17.6% in January 2009. Over the 2009-14 period, 21 countries raised their standard VAT rate at least once.
The 21 OECD countries that are members of the European Union have an average standard VAT rate of 21.7%, which is significantly above the OECD average.
While most OECD countries have increased their standard VAT rates, only a few have taken measures to broaden their VAT base. Many OECD countries continue to use reduced VAT rates and exemptions mainly for equity and social objectives.
However, broadening the VAT base by limiting the use of reduced rates and exemptions may allow countries to increase revenue without raising the standard rate, and at the same time reduce compliance and administrative costs. A reduction of the standard rate may even be possible by broadening the tax base.
A separate OECD Study (The Distributional Effects of Consumption Taxes in OECD Countries) shows that many of these reduced VAT rates actually benefit higher income households more than lower income households. This is particularly the case for reduced VAT rates on restaurant meals, hotel rooms and cultural goods, like books, theater and movie tickets.
The study suggests that a better way to achieve equity and social objectives would be to remove many of these reduced rates and replace them with better targeted relief measures, such as income-tested benefits and tax credits How does Israel compare – VAT
The Israeli standard VAT rate is 18%, which is below the OECD average. The average VAT/GST standard rate in the OECD was 19.1% on January 1, 2014, up from 17.6% on January 1, 2009.
Israel applies a reduced rate of 0% to a limited number of goods and services. In the last five years, 20 of the 34 OECD countries have raised their standard VAT/GST rate at least once.
In line with this trend, Israel increased its standard rate from 16% to 17% in 2012 and to 18% in 2013.
The OECD’s biennial Consumption Tax Trends report found that VAT revenues in Israel accounted for 24.7% of total tax revenue in 2012, above the OECD average of 19.5%.Comments:
The OECD has concluded that on the whole, Israel has better than average tax rates. This is the case for both income taxes and VAT. It is notable the OECD is apparently not in favor of reduced VAT rates – a reduction in the standard VAT rate or targeted VAT refunds seem to be preferred...As always, consult experienced tax advisers in each country at an early stage in specific cases.
firstname.lastname@example.org The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.