Consumption Tax Trends provides information on Value Added Taxes/Goods and Services Taxes (VAT/GST) and excise duty rates in OECD member countries. It also contains information about international aspects of VAT/GST developments and the efficiency of this tax. It describes a range of other consumption taxation provisions on tobacco, alcoholic beverages, motor vehicles and aviation fuels.
Consumption Tax Trends 2022
VAT/GST and Excise, Core Design Features and Trends
Consumption Tax Trends
Abstract
Executive Summary
Consumption tax revenues decreased slightly in 2020 to 9.9% of GDP in OECD countries on average, down from 10.0% in 2019 and 10.2% in 2018. The overall share of consumption taxes in total tax revenue decreased to 30.0% in 2020, compared to 30.6% in 2019 and 30.8% in 2018. This decline is mainly attributable to the continuously decreasing importance of taxes on specific goods and services (mostly on tobacco, alcoholic drinks and fuels, as well as some environment-related taxes) as a share of total taxation in OECD countries, on average. Value added taxes (VAT) produced 20.2% of total taxes in OECD countries on average in 2020. This makes VAT by far the main category of consumption taxes, generating almost three times as much tax revenue as excise duties that form the bulk of taxes on specific goods and services, accounting for 6.9% of total tax revenues in 2020 on average.
Main consumption tax trends in OECD countries
Consumption tax-to-GDP ratios declined in 28 out of the 38 OECD countries between 2018 and 2020, increased in 9 countries while 1 country saw no change. Consumption taxes produce more than 40% of total taxes in 5 OECD countries (Chile, Colombia, Hungary, Latvia and Türkiye) and more than 50% of total tax revenue in one country (Chile). They account for less than 20% of total taxes in 3 OECD countries (Japan, Switzerland and the United States).
VAT revenues have remained stable in OECD countries between 2018 and 2020 on average, at 6.7% as a share of GDP in 2020, i.e. the same level as in 2018 and 2019. VAT accounts for one-fifth of total tax revenues (20.2%) on average, representing 20% or more of total taxes in 21 of the 37 OECD countries that operate a VAT. Twenty countries saw a decline in VAT revenue as a share of GDP between 2018 and 2020, while 13 reported an increase and 4 saw no change. Decreases of 0.5 percentage points (p.p.) or more were recorded in Germany (-0.5 p.p.), in Chile and Iceland (-0.6 p.p.), in Greece and Slovenia (-0.7 p.p.), and in Ireland (-0.9 p.p.). The largest increases were seen in Netherlands (+0.6 p.p.), (Norway (+0.7 p.p.) and in Japan and New Zealand (+0.9 p.p.).
Nominal VAT revenue decreased in 2020 compared to 2019 in 19 OECD countries while it increased slightly in 12 countries and remained almost stable in 6 others. Overall VAT revenues declined in OECD countries by 2.4% in nominal terms in 2020. Preliminary figures for 2021 analysed in the special feature in 2022 edition of Revenue Statistics on The Impact of COVID-19 on OECD Tax Revenues, show that VAT revenues rose by 17.3% in nominal terms between 2020 and 2021.
Revenues from taxes on specific goods and services, primarily excises, have further declined both as a percentage of GDP (to 3.0% in 2020; a decline of 0.2 percentage points compared to 2018) and as a percentage of total tax revenue (to 9.1% in 2020; down 0.6 percentage points since 2018).
Standard VAT rates across OECD countries remained stable in 2022 at 19.2% on average. Two OECD countries (Germany and Ireland) introduced a temporary reduction of their standard VAT rate in 2020 (from 19% to 16 % and from 23% to 21% respectively) as part of their economic stimulus packages in response to the COVID-19 crisis. They have reverted to their pre-crisis standard rate since then.
In response to the COVID-19 outbreak, most OECD countries introduced zero (or reduced) VAT rates for supplies and imports of medical equipment and sanitary products (gloves, masks, hand sanitiser…) and for healthcare services where these were not yet VAT exempt or subject to reduced rates under normal rules. Some countries introduced temporary VAT rate reductions to stimulate consumption and/or to support specific economic sectors (e.g. tourism, hospitality). Most temporary rate changes that were introduced in 2020 to address the pandemic were withdrawn in 2021, except those related to medical supplies used to respond to the pandemic. More recently, several OECD countries introduced VAT rate reductions to help cushion the impact of rising energy prices. These measures, which have been typically announced as temporary, can apply to energy products in general or to specific products such as electricity, gas and district heating.
All OECD countries with a VAT have implemented, or committed to, the OECD standards for the collection of VAT on online sales of services and digital products from non-resident e-commerce vendors. Many OECD countries have further expanded these e-commerce VAT regimes, in particular to include online sales of small parcels imported from abroad by foreign e-commerce marketplaces and other digital vendors. Twenty-six OECD countries (Australia, New Zealand, Norway, the United Kingdom and the 22 countries that are Member States of the European Union) have implemented such reform, in line with OECD guidance.
Most OECD countries have now implemented some type of electronic transaction information reporting obligation, requiring the transmission of detailed information in an electronic format on individual taxable transactions. These requirements are heterogeneous across OECD countries and can differ on several aspects such as scope, data collected or frequency of reporting (systematic or on request). Eighteen out of the 31 countries requiring electronic transaction reporting require the systematic transmission of such information to the tax administration and 10 of these countries require this transmission to happen in (near) real time. While the progressive digitalisation of invoices continues, and electronic invoicing is now permitted in all OECD countries, it is only mandatory (with a varying scope) in 11 of these countries.
Excise duties are used by OECD countries not only to raise revenue but also to influence customer behaviour where consumption of certain products is considered harmful to health or to the environment. This is notably illustrated by the total tax burden on cigarettes, which was above 60% of the consumer price in almost all OECD countries and above 75%, as recommended by the World Health Organisation, in 21 OECD countries. The total tax burden for premium unleaded gasoline exceeds 40% of the consumer price in all but eight OECD countries in 2022. Excise levels for diesel fuel remain lower than those for gasoline in all but four OECD countries. Aviation fuels remain often exempt from taxes, particularly when used for commercial international flights.
Car taxation is increasingly aimed at influencing customer behaviour and at stimulating the use of low polluting vehicles. In 2022, almost all OECD countries take environmental or fuel efficiency criteria into account when determining the level of taxation for the purchase or use of vehicles and 26 of these countries apply tax rebates or exemptions for electric or hybrid vehicles.
The VAT Revenue Ratio for OECD countries
Across the OECD, the unweighted average VRR has remained relatively stable at 0.56 in 2020, up 0.01 from 0.55 in 2019 and at the same level as in 2018. The stability of the average VRR in the first year of the COVID-19 pandemic stands in contrast to the significant decline of the average VRR during the Global Financial Crisis, from 0.59 in 2007 to 0.53 in 2009. The unweighted average VRR of 0.56 in 2020 suggests that, on average, an estimated 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 were applied at the standard rate to the entire potential tax base in a “pure” VAT regime. It provides an indicator that combines the effect of loss of revenues as a consequence of exemptions and reduced rates, fraud and non-compliance.
