Eurostat Notes Rising Consumption Tax

by Ulrika Lomas, Tax-News.com, Brussels

07 July 2011

According to a recent study conducted by Eurostat, the statistical office of the European Union (EU), the global financial and economic crisis has changed the fiscal shape of Europe.

In its 2011 edition of the publication ‘Taxation trends in the European Union’, Eurostat highlights one area in particular where the onset of the crisis has clearly had an impact, namely consumption taxation. Although the average standard rate of value-added tax (VAT) rose only slightly from 2000 to 2008, the data reveals that in the three subsequent years to 2011, the average standard rate in the EU27 then rose strongly from 19.4% in 2008 to reach 20.7% this year. Standard VAT rates varied significantly in 2011 from 15% in Cyprus and Luxembourg to 25% in Denmark, Hungary and Sweden, Eurostat points out.

Determined to reduce their budget deficits in the wake of the crisis, about half of all EU member states elected to increase their VAT rates between 2008 and 2011, with the highest increases registered in Hungary (from 20% to 25%), Romania (from 19% to 24%), Greece (rising from 19% to 23%), and Latvia (from 18% to 22%).

The study also reveals that the overall tax-to-GDP ratio in the EU27 declined to 38.4% in 2009, compared with 39.3% in 2008. Data indicates that this decrease was essentially due to the 4.3% drop in GDP between 2008 and 2009 rather than to tax cuts, Eurostat explains. Compared to the beginning of the decade, the EU27 tax ratio declined by 2.1%, the statistical office adds.

Alluding specifically to the overall tax ratio in the euro area, Eurostat notes a fall to 39.1% in 2009 compared with 39.7% in 2008. Since 2000, taxes in the euro area have followed a similar trend to the EU27, Eurostat continues, albeit at a slightly higher level.

Comparing the data to the rest of the world, Eurostat maintains that the EU27 tax ratio remains generally high and more than one third above the levels recorded in the US and Japan. It does, however, emphasize that the tax burden varies significantly between EU member states, ranging in 2009 from below 30% in Latvia (26.6%), Romania (27%), Ireland (28.2%), Slovakia (28.8%), Bulgaria (28.9%) and Lithuania (29.3%) to over 45% in Denmark (48.1%) and Sweden (46.9%).

Remarking that the highest top tax rate imposed on personal income is currently in Sweden (56.4%), Belgium (53.7%) and the Netherlands (52%), Eurostat points out that the average top personal income tax rate in the EU27 fell in 2011, largely due to a 20% drop recorded in Hungary. Other high top rates of personal income tax this year are, the study shows, found in Denmark (51.5%), Austria and the UK (50%), while the lowest rates are seen in Bulgaria (10%), the Czech Republic and Lithuania (both 15%), Romania (16%) and Slovakia (19%).

As regards corporate tax rates within the EU, the study confirms their continued declining trend this year. Data shows that the highest statutory tax rates on 2011 corporate income are recorded in Malta (35%), France (34.4%), and Belgium (34%) while the lowest are seen in Bulgaria and Cyprus (both 10%) and Ireland (12.5%).

Underlining the fact that the largest source of tax revenue in the EU is labour taxes, representing nearly half of total tax receipts, followed by consumption taxes at roughly one third and taxes on capital at just under one fifth, Eurostat notes that the highest implicit tax rate on labour in 2009 was 42.6% recorded in Italy (against 20.2% in Malta), while the highest implicit tax rate on consumption and on capital were 31.5% and 43.8% respectively in Denmark (set against the lowest implicit tax rate on consumption registered in Spain of 12.3% and on capital in Latvia of 10.3%).

Implicit tax rates express aggregate tax revenues as a percentage of the potential tax base for each field.

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