Analytics, EU – Baltic States, Financial Services, Legislation, Taxation

The overall tax-to-GDP ratio1 in the EU-27 declined to 38.4% in 2009, compared with 39.3% in 2008. Data indicate that this decrease was essentially due to the 4.3% drop in GDP from 2008 to 2009, rather than to tax cuts. Compared to the beginning of the decade the EU27 tax ratio declined by 2.1 points.

The overall tax ratio in the euro area-17 fell 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, although at a slightly higher level.

In comparison with the rest of the world, the EU-27 tax ratio remains generally high and more than one third above the levels recorded in the USA and Japan. However, the tax burden varies significantly between member states, ranging in 2009 from less than 30% in Latvia (26.6%), Romania (27.0%), Ireland (28.2%), Slovakia (28.8%), Bulgaria (28.9%) and Lithuania (29.3%) to more than 45% in Denmark (48.1%) and Sweden (46.9%).

Between 2000 and 2009, the largest falls in tax-to-GDP ratios were recorded in Slovakia (from 34.1% in 2000 to 28.8% in 2009), Sweden (from 51.5% to 46.9%), Greece (from 34.6% to 30.3%) and Finland (from 47.2% to 43.1%), and the highest increases in Malta (from 28.2% to 34.2%), Cyprus (from 30.0% to 35.1%) and Estonia (from 31.0% to 35.9%).

This information comes from the 2011 edition of the publication Taxation trends in the European Union issued by Eurostat, the statistical office of the European Union and the Commission’s Directorate-General for Taxation and Customs Union, DG TAXUD. This publication compiles tax indicators in a harmonised framework based on the European System of Accounts (ESA 95), allowing accurate comparison of the tax systems and tax policies between EU Member States.

This year's edition of the report for the first time includes data on average effective tax ratios for non-financial corporations. In addition, the report also contains a detailed analysis of the impact of the economic and financial crisis on the tax systems of all EU Member States.

Standard VAT rate hiked by 1.3 points since the beginning of the economic crisis. One area where the onset of the economic and financial crisis has clearly had an impact was consumption taxation. Rising only slightly from 2000 to 2008, the average standard VAT rate in the EU-27 has risen strongly from 19.4% in 2008, to reach 20.7% in 2011. The standard VAT rate in 2011 varied from 15.0% in Cyprus and Luxembourg to 25.0% in Denmark, Hungary and Sweden.

About half of the Member States have increased VAT rates between 2008 and 2011. The highest increases were registered in Hungary (from 20.0% to 25.0%), Romania (from 19.0% to 24.0%), Greece (from 19.0% to 23.0%) and Latvia (from 18.0% to 22.0%).

Table: Standard value added tax rate in the Baltic Sea States, %

Highest top tax rate on personal income among the Baltic States is in Sweden and Denmark; in other member states are Belgium and the Netherlands. 

The average top personal income tax rate in the EU-27 fell in 2011 (largely due to a 20 percentage point drop in Hungary). The highest top rates on 2011 personal income are found in Sweden (56.4%), Denmark (51.5%) and the United Kingdom (50.0%); lowest are in Latvia and Lithuania (both 15.0%).

Corporate tax rates in the EU-27 continued their declining trend in 2011. The highest statutory tax rates on 2011 corporate income are recorded outside the Baltic Sea Region: in Malta (35.0%), France (34.4%) and Belgium (34.0%), and the lowest in Bulgaria and Cyprus (both 10.0%) and Ireland (12.5%).

Table: Top statutory income tax rates, %

Highest implicit tax rates on labour is in Italy, and on consumption and capital – in Denmark. The largest source of tax revenue in the EU-27 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.

The average implicit tax rate on labour, as a broad measure of the average tax burden falling on work income, was down in the EU-27 at 32.9% of the potential tax base in 2009 compared with 33.8% in 2008, continuing the decline from 35.7% in 2000. Among the member states, the implicit tax rate on labour ranged in 2009 from 20.2% in Malta, 23.1% in Portugal, 24.3% in Romania and 25.1% in the United Kingdom, to 42.6% in Italy, 41.5% in Belgium, 41.1% in France and 41.0% in Hungary.

The average implicit tax rate on consumption in the EU-27, which had risen between 2001 and 2007, dropped to 20.9% in 2009 from 21.4% in 2008. In 2009, implicit tax rates on consumption were lowest in Spain (12.3%), Greece (14.0%), Portugal (16.2%) and Italy (16.3%), and highest in Denmark (31.5%), Hungary (28.2%), Estonia and Sweden (both 27.6%).

In the EU-27, the average implicit tax rate on capital for the member states for which data are available was 24.7% in 2009 compared with 25.2% in 2008. The lowest implicit tax rates on capital were recorded in Latvia (10.3%), Lithuania (10.9%) and Estonia (14.0%), and the highest in Denmark (43.8%), Italy (39.1%) and the United Kingdom (38.9%).

Table: Tax revenue and implicit tax rates by type of economic activity

Notes:

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

- EU-27 and Eurozone -17 overall tax ratios are calculated in the EU statistics as GDP-weighted average of the member states. For ITRs the aggregates are calculated as arithmetic averages of the member states and adjusted for missing data.

- The overall tax-to-GDP ratio measures the tax burden as the total amount of taxes and compulsory actual social security contributions as a percentage of GDP. This definition differs slightly from the one used in the Statistics in Focus 26/2011, "Tax revenue in the EU", which includes voluntary and imputed social contributions.

- "Taxation trends in the European Union" is an English publication of the Commission based on data available on 1 February 2011. The publication can be seen at the DG TAXUD websites:

http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/publications/other_publications, and on

http://ec.europa.eu/taxtrends

- Value Added Tax, VAT, is generally, a broadly based consumption tax assessed on the value added to goods and services. The standard VAT rate is the rate to which a majority of goods and services are subject, while the member states may apply reduced VAT rates to goods and services enumerated in a restricted list.

- The top personal income tax rate refers to the tax rate for the highest income bracket adding surcharges of general application.

- The adjusted statutory tax rate on corporate income takes into account corporate income tax (CIT) and, if they exist, surcharges, local taxes, or even additional taxes levied on tax bases that are similar but often not identical to the CIT.

- Implicit tax rates (ITR) measure the average tax burden on different types of economic income or activities, i.e. on labour, consumption and capital. ITR express aggregate tax revenues as a percentage of the potential tax base for each field.

- The ITR on labour is the ratio between taxes and social contributions paid on earned income and the cost of labour. The numerator includes all direct and indirect taxes and social contributions levied on employed labour income, while the denominator amounts to the total compensation of employees working in the economic territory increased by taxes on wage bills and the payroll. It is calculated for employed labour only (so excluding the tax burden falling on social transfers, including pensions). The average may conceal important variations in the tax burden across the income distribution.

- The ITR on consumption is the ratio between the revenue from consumption taxes and the final consumption expenditure of households on the economic territory.

-The ITR on capital includes, in the numerator, the taxes levied on the income earned from savings and investments by households and corporations and taxes related to stocks of capital stemming from savings and investment in previous periods. The denominator of the capital ITR is a proxy of the world-wide capital and business income of Member States' residents for domestic tax purposes. Trends in the capital ITR reflect a wide range of factors and should be interpreted with caution.

- All ITRs for the EU and the euro area are calculated as arithmetic averages

For further information see:

- Eurostat news releases on the internet: http://ec.europa.eu/eurostat

- Taxation news releases on the internet: http://ec.europa.eu/taxation_customs/taxation/index_en.htm