Consumption Tax Trends 2014
Tax landscape is shifting away from taxes on labour and corporate income towards more ‘growth friendly’ sources of revenue, like consumption taxes and property taxes. VAT is an important source of revenue for OECD countries, representing on average approximately 20% of total tax revenues.
Consumption Tax Trends 2014 highlights increase in standard VAT rates in 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.
Country Notes provide further data on national consumption tax trends and the effectiveness of VAT/GST collection in OECD countries.
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.”
The Distributional Effects of Consumption Taxes in OECD Countries
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, theatre and cinema tickets.
This study, carried out in conjunction with the Korea Institute of Public Finance, 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.