Consumption taxes (which mainly include VAT, sales taxes and excise duties) account for around 30% of total tax revenues on average in OECD countries. Consumption taxes have been a stable source of revenue for governments over time, although their composition has changed: OECD countries rely increasingly on general consumption taxes (VAT and sales taxes), while the share of revenue from excise duties has declined.
Consumption tax trends
Consumption taxes provide an essential part of governments’ revenues, but their regimes and rates vary widely. The comparative approach taken in this biennial publication helps decision-makers to better situate their actions. It provides information on Value Added Taxes/Goods and Services Taxes (VAT/GST) and selected excise duties on tobacco, alcoholic beverages, motor vehicles and aviation fuels in OECD countries.
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Key messages
VAT/GST revenues account for more than 20% of total tax revenue on average in OECD countries. They also provide significant tax revenue in 174 countries worldwide, where VAT/GST has been implemented. Although based on the same basic principles, VAT/GST systems vary widely between countries, particularly in terms of rates, with the standard VAT/GST rate ranging from 5% to 27% among OECD countries. Many factors may influence VAT/GST revenue and its importance in countries’ tax mix. These notably include countries’ capacity to collect the tax, as influenced by the application of reduced rates and the exemptions and the capacity to combat fraud, evasion and tax planning.
The VAT Revenue Ratio (VRR) provides a measure of the extent to which a VAT regime collects the VAT on the natural base of the tax, i.e. on final consumption expenditure. To achieve this, the VRR estimates the difference between the VAT revenue actually collected under a country’s VAT regime and what would theoretically be raised if VAT was uniformly applied at the standard rate to the entire final consumption expenditure. The difference between the two mainly includes revenue losses due to reduced rates, exemptions and non-compliance. The average VRR in OECD countries in 2020 was 0.56.
Excise duties are increasingly 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 is above 60% of the consumer price in almost all OECD countries and above 75% in a majority of them.
Vehicle taxes are increasingly aimed at influencing customer behaviour and at stimulating the use of low or less polluting vehicles. 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 many of them apply tax rebates or exemptions for electric or hybrid vehicles. On the other hand, aviation fuels are often subject to tax exemptions, in particular for international commercial flights.
Context
Value Added Taxes account for a significant proportion of total taxation in most OECD countries
VAT raises about 21% of total tax revenues on average in OECD countries, and more than 15% of total tax revenues in most of them. The share of VAT in total tax revenues shows, however, a considerable spread ranging from less than 15% in Australia, Switzerland, Canada, Korea and Japan to more than 29% in Hungary, New Zealand, Colombia and Chile.
