countries with consumption tax

Rather, it aims at taxing the sale to the final consumer through a staged collection process along the supply chain. The complexity measure for consumption taxes has been removed as no suitable replacement for the prior measure was found to be compatible. The overarching purpose of a VAT is to impose a broad-based tax on final consumption, which is understood to mean final consumption by households. Property taxes are modest, and Denmark allows property taxes to be deducted against corporate income tax. In Switzerland, low value goods are defined by the VAT amount due, i.e. A surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. The UKs ranking increased from 27 to 26. The following paragraphs provide a concise overview of the mechanisms for identifying the destination of a supply, focusing on supplies of goods first and then on supplies of services. For that reason, prior editions are not comparable to the results in this 2022 edition. Restrictions to the deduction of input VAT result in particular from the application of VAT exemptions. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided. According to our Index, Switzerland has the best-structured consumption tax among OECD countries. This is followed by an overview of the main features of VAT design (Section 1.5), of the main design features of retail sales taxes (Section 1.6) and of the main characteristics of consumption taxes on specific goods and services (Section 1.7). Access to this content in this format requires a current subscription or a prior purchase. your login credentials do not authorize you to access this content in the selected format. Learn more about the Mexican tax systemhere. They accounted for only 13.4% of total tax revenue in OECD countries in 1975 compared to 21.2% in 2018. Goods subject to specific duties such as excise would in principle be excluded from the vendor collection approach. Revenues from VAT as a percentage of GDP slightly increased from 6.7% in 2015 to 6.8% in 2018 on average and as a share of total taxation from 20.3% to 20.4% over the same period. January 26, 2021. StatLinkhttps://doi.org/10.1787/888934219907. The Slovak Republic has better-than-average tax treatment of business investment in machinery, buildings, and intangibles. However, if they were appropriately accounted for, countries like Australia, the United Kingdom, and the United States would likely receive worse scores on their cross-border tax rulespotentially also impacting their overall ranking on the Index. Or consider purchasing the publication. These exceptions include notably the services connected with immovable property (taxed where the property is located); services relating to cultural, artistic, sporting, scientific, educational, entertainment etc. New Zealand implemented a similar regime from 1 December 2019 where imports of low-value goods from foreign supplies to final consumers in New Zealand are taxed if the foreign supplier sells goods for more than NZD 60 000 per annum in the country, the same registration threshold as for domestic businesses. However, in most sales tax systems, businesses do incur some irrecoverable sales tax on their inputs and, if they subsequently export goods, there will be an element of sales tax embedded in the price. Not all recent changes in tax policy among OECD countries have improved the structure of tax systems; some have made a negative impact. Switzerland implemented a regime since 1 January 2019 requiring foreign vendors and digital platforms to register for VAT in the country and to remit the tax on imports of low value goods to final consumers. Learn more about the Turkish tax systemhere. Greece has a relatively narrow tax treaty network (57 treaties compared to an OECD average of 74 treaties). New Zealand increased its top personal income tax rate from 33 percent to 39 percent. 10. VAT rate measures taken by countries as part of the Covid-19 crisis are not reflected in this table given their temporary nature. The share of property taxes and environment-related taxes has been fairly constant over time. These variables measure not only the level of tax rates, but also how taxes are structured. The evolution of VAT as an increasingly important source of tax revenues for countries around the world, and its application to an increasingly large share of the worlds economic activity, have raised its importance in the global tax policy debate. A number of excise duties have been adjusted with a view to discouraging certain behaviours considered harmful, especially for health and environmental reasons. a connection with a tangible property; the customer location and/or residence; the location of the person to whom the services are delivered or who uses the service. Australia ranks well on consumption taxes due to its low goods and services tax (GST) rate but applies it to a relatively narrow base. Source: F. Annacondia, International - Overview of General Turnover Taxes and Tax Rates, International VAT Monitor, Journals IBFD, cited with permission of IBFD, see http://online.ibfd.org/kbase/, All rights reserved. Latvia, which recently adopted the Estonian system for corporate taxation, also has a relatively efficient system for taxing labor income. The headline corporate rate of 25 percent is slightly above the OECD average (23.6 percent). The Czech Republics ranking fell from 4th to 5th. Though some countries like the United States and France have reduced their corporate income tax rates by several percentage points, others, like Turkey, have increased them. the place of taxation) depends on the status of the customer receiving the service and the nature of the service supplied. A wealth taxis imposed on an individuals net wealth, or the market value of their total owned assets minus liabilities. Polands taxes on labor are generally flat, allowing the government to raise revenue from taxes on workers with relative low efficiency costs. Turkey has multiple distortionary property taxes with separate levies on real estate transfers, estates, and financial transactions. Learn more about the Norwegian tax systemhere. Although there is a wide diversity in the way VAT systems are implemented, this tax can be defined by its purpose and its specific tax collection mechanism. To facilitate compliance by non-EU suppliers, the EU member states created an online digital portal (Mini One Stop Shop - MOSS), allowing these suppliers to register at a distance in only one Member State and account in this Member State for the VAT due in all the Member States of the EU where their customers are located. The key common feature among these various VAT models for determining the place of taxation of internationally traded services is that they generally aim to implement the destination principle, under which the place of taxation rules are intended to impose tax at the place of consumption. Most OECD countries apply a reverse charge mechanism to collect VAT on inbound B2B supplies of services and intangibles. The WHO manual highlights the experiences of countries who have successfully implemented the tax, including Mexico, South Africa, and the United Kingdom. Imports of goods that are not considered as low value goods i.e. Kosovo This designation is without prejudice to positions on status, and is in line with United Nations Security Council Resolution 1244/99 and the Advisory Opinion of the International Court of Justice on Kosovos declaration of independence. As the duration of the pandemic lengthens and uncertainty about its development remains high, countries have been extending and expanding these emergency policy measures. on the sale by the retailer to the final consumer. This latter rule does not reflect a will to apply the origin principle to B2C supplies but rather the historical reality that most services were consumed where they were provided and it was technically difficult to provide services at a distance to final consumers. Italy has multiple distortionary property taxes with separate levies on real estate transfers, estates, and financial transactions, as well as a wealth tax on selected assets. (Victoria J Perry ; Katherine Baer ; Emil M Sunley, 1996[11]). Main characteristics of consumption taxes on specific goods and services, 1.8. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. 16. The corporate tax rate in Australia is 30 percent, above the OECD average (23.6 percent). The Guidelines recommend that these foreign suppliers be required to register and remit VAT in the jurisdiction of taxation and that countries implement a simplified registration and compliance regime to facilitate compliance for non-resident suppliers. Tax-to-GDP ratios in 2021 varied considerably, both across countries and since 2020 (Table 1). Some strengths of the Norwegian tax system: Some weaknesses of the Norwegian tax system: Poland ranks 28th overall on the 2022 International Tax Competitiveness Index, two places better than in 2021. One important difference is that New Zealand implemented a simplification measure allowing suppliers whose shipments to consumers in New Zealand comprise at least 75 percent of goods below the NZD 1000 threshold, are allowed to make an election to apply the simplified pay only regime to the entire shipment, including the goods with a value above NZD 1000. The adoption of the OECD International VAT/GST Guidelines responds to these challenges (see below). These new rules will apply to distance sales of goods by EU and non-EU vendors with a value of EUR 150 or below. the same as the domestic registration threshold) are required to register and remit the VAT on these sales in Switzerland. This applies when a foreign vendor or a digital platform is requested to deliver the goods outside Australia or New Zealand without knowing that the goods are destined for one of these countries, and the consumer contracts to have those goods re-delivered to Australia or New Zealand. The full right to deduct input tax through the supply chain, except by the final consumer, ensures the neutrality of the tax, whatever the nature of the product, the structure of the distribution chain, and the means used for its delivery (e.g. Learn more about theChilean tax systemhere. a tax collected at all stages of the processes of production and distribution of goods and services, accumulation of the tax being prevented by allowing businesses to deduct the tax they incur on their inputs from the tax they collect on their outputs. The key economic difference between the two principles is that the destination principle places all firms competing in a given jurisdiction on an even footing whereas the origin principle places consumers in different jurisdictions on an even footing. The International Tax Competitiveness Index (ITCI) seeks to measure the extent to which a countrys tax system adheres to two important aspects of tax policy: competitiveness and neutrality. Annex Table 2.A.8 presents a broad overview of the approaches adopted by OECD countries for collecting VAT on cross-border supplies of services and intangibles from foreign suppliers (i.e. Sweden has a top statutory personal income tax rate of 52.3 percent. Select one or more items in both lists to browse for the relevant content, Browse the selectedThemes and / or countries. Under this model, the (online) vendor of the low value goods or the digital platform through which these goods are sold is required to register in the jurisdiction of importation and to remit the VAT on these sales in that jurisdiction via the same simplified registration and collection mechanism that is recommended for the taxation of remote supplies of services and intangibles to final consumers (see below). Turkey recognizes the Turkish Republic of Northern Cyprus (TRNC). The OECD is developing specific regional toolkits to support developing countries wishing to implement its standards and guidance on VAT. A simplified registration and collection regime (without right to deduct input taxes in the taxing jurisdiction - pay-only registration) applies in these countries (generally with an option for standard registration), except in Japan and Switzerland where only the standard registration is available (with the right to deduct the input tax incurred in the country) and where the foreign supplier must appoint a local tax agent. VAT is now operated in 36 of the 37 OECD countries, the United States being the only OECD country not to have adopted a VAT. Under the origin principle, the tax is levied in the various jurisdictions where the value is added. Austria implemented a digital services tax (DST) in 2020. In the OECD classification, taxes are confined to compulsory, unrequited payments to general government. Some 170 countries operate a VAT today (see Annex A), including 36 of the 37 OECD member countries, the only exception being the United States although most states within the US employ some form of retail sales tax. To support developing countries wishing to implement the OECD standards and guidance in the area of VAT, the OECD has committed to developing specific regional toolkits. Estonias territorial tax system is limited to European countries. Organisation for Economic Co-operation and Development (OECD) Controlled Foreign Corporation rules are applied to both passive and active income. Learn more about the Slovenian tax systemhere. For the ninth year in a row, Estonia has the best tax code in the OECD. For business-to-consumer supplies, the Guidelines recommend that the taxing rights over on-the-spot supplies be allocated to the jurisdiction in which the supply is physically performed; and that the taxing rights over all other supplies and services be allocated to the jurisdiction in which the customer has its usual residence. These goods will then be exempt from VAT at importation, allowing a fast release at customs. In contrast, the application of the destination principle in VAT achieves neutrality in international trade. It has a wealth tax on real estate, a financial transaction tax, and an inheritance tax. The spread of VAT has been among the most important developments in taxation over the last half century. Source: Authors work based on Fabiola Annacondia 2019. It can be argued, however, that the economic burden of the VAT may effectively lie in a variable proportion on business and consumers. The VAT rate of 19 percent is near the OECD average (19 percent). This means that it doesnt favor consumption over saving, as happens with investment taxes and wealth taxes. In 1975, thirteen of the current OECD member countries had a VAT (see Annex Table 2.1 in Chapter 2). Some strengths of the Belgium tax system: Some weaknesses of the Belgium tax system: Canada ranks 16th overall on the 2022 International Tax Competitiveness Index, two spots better than in 2021. The tax is charged on each item sold to purchasers who do not provide such a certificate or equivalent evidence. Learn more about the Canadian tax systemhere. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation's reach and impact around the world. Learn more about the German tax systemhere. The UK introduced a temporary 130 percent super-deduction for plant and equipment. Korea has a broad tax treaty network, with 93 countries. From a legal and practical standpoint, VAT is essentially a transaction tax. Luxembourg applies its relatively low VAT rate of 17percent to nearly 80 percent of final consumption. Or consider purchasing the publication. Data for all years using the current methodology is accessible in the GitHub repository for the Index,[4] and a description of how the Index is calculated is provided in the Appendix of this report. Iceland has a territorial tax system that fully exempts foreign dividends and capital gains with no country limitations. How Countries Function Without Income Taxes Income taxes are imposed by governments on the income generated by individuals and businesses within their jurisdiction. Over this period, 19 countries reported an increase in their consumption tax-to-GDP ratios while 15 recorded a decrease and 3 saw no change. These VAT exemptions for low value imports have become increasingly controversial in the context of the growing digital economy. Where such distance sales are facilitated by electronic marketplaces, these will be considered as the suppliers of the goods for VAT purposes and be liable for collecting and declaring the VAT on these sales. When the right to deduct input VAT covers all business inputs, the final burden of the tax does not lie on businesses but on consumers. Lithuanias corporate tax rate is 15 percent, well below the OECD average of 23.6 percent. In the Islands of Madeira the standard rate is 22% and reduced rates are 5% and 12%. Note that in instances where a territory has a consumption tax similar to a VAT (e.g. The VAT of 15 percent applies to nearly the entire potential consumption tax base. The need for a consistent global response to the challenge of applying VAT to international trade became particularly urgent due to the strong growth of international trade in services, digital products and goods from online sales as a consequence of the expansion of the digital economy. The report outlines and assesses the main available approaches to address this challenge, noting that a vendor collection model offered the most promising solution. Three groups of countries can be distinguished depending on their level of consumption tax revenues as a share of GDP: low (consumption tax-to-GDP ratios below 9%), mid (between 9% and 13%) and high (above 13%). Slovenias tax treatment of investments in buildings and intangibles is below the OECD average. Israel: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The U.S. allows for Last-In-First-Out treatment of the cost of inventory. Taxes in Europe The payment of taxes in Europe is not the same. The corporate rate of 26.2 percent is above average among OECD countries (23.6 percent). Learn more about the Polish tax systemhere. Taxing the Digital Economy through Consumption Taxes (VAT) in African Countries: Possibilities, Constraints and Implications Authors: Favourate Sebele National University of Science and. In the OECD nomenclature, taxes on specific goods and services (5120) include a range of taxes such as excises, customs and import duties, taxes on exports and taxes on specific services. The first is the rate of a corporate surtax if any exists. exempt with right to deduct the related input tax) under the destination principle, and for businesses whose purchases are larger than their sales in the same period (such as new or developing businesses or seasonal businesses). The ITCI gives a comprehensive overview of how developed countries tax codes compare, explains why certain tax codes stand out as good or bad models for reform, and provides important insight into how to think about tax policy. A competitive tax code is one that keeps marginal tax rates low. The OECDs standards and expertise in VAT are also increasingly in demand from developing countries. Rather, it is a subnational tax imposed at the state and local government levels. Hungary has the highest VAT rate among OECD countries, at 27 percent. Lithuania has both a patent box and a super deduction for Research and Development expenditures. There has indeed been a discernible trend in recent decades to ascribe to these taxes characteristics other than simply revenue raising. Annex Table1.A.3 shows that revenues from taxes on specific goods and services have decreased steadily as a percentage of GDP between 1975 (4.6%) and 2010 (3.3%) and have remained stable on average since then at 3.2% in 2018. The Index looks at a country's corporate taxes, individual income taxes, consumption taxes, property taxes, and the treatment of profits earned overseas. For business-to-business supplies, the Guidelines establish that, the taxing rights on cross border supplies of services and intangibles are to be allocated to the jurisdiction where the business customer has located its permanent business presence. In September 2021, that report was discontinued. Over 60 countries have implemented these standards while several other countries are preparing to implement these standards or are considering doing so. Some strengths of the Danish tax system: Some weaknesses of the Danish tax system: Estonia ranks 1st overall on the 2022 International Tax Competitiveness Index, the same as in 2021, and for the ninth consecutive year. A corporate income tax (CIT) is levied by federal and state governments on business profits. Estonias thin capitalization rules are among the more stringent ones in the OECD. The continuously growing impact of these standards reflects their significant importance for countries VAT revenues and for minimising competitive distortions between online traders and traditional businesses. Learn more about the Slovakian tax systemhere. The substantially increased importance of VAT has effectively balanced the diminishing share of taxes on specific goods and services (see Figure1.3). It also provides sellers access to sales tax administration software paid for by the State. Below is a preview of the 2022Index. an exemption with right to deduct input tax). Among nations in the Middle East and Africa, sugar taxes are in play in countries including Saudi Arabia, the United Arab Emirates, Oman and South Africa. Mexico has a higher-than-average corporate tax rate of 30 percent (the OECD average is 23.6 percent). The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at http://www.oecd.org/termsandconditions. Countries with VAT. Standard value added tax rates in OECD countries VAT rate in %, as on 1 January 2022 Source: OECD (2022), Consumption Tax Trends 2022 The OECD average is unweighted. Australia implemented a VAT (Goods and Services Tax GST) in 2000. The tax burden on labor of 47 percent is among the highest for OECD countries. Limited to less than ten countries in the late 1960s it has now been implemented by about 136 countries; and in these countries (including OECD member countries) it typically accounts for one-fifth of total tax revenue. Accordingly, the total tax paid in relation to a supply is determined by the rules applicable in the jurisdiction of its consumption and therefore all revenue accrues to the jurisdiction where the supply to the final consumer occurs. This is due to two main factors: the compliance risks associated with the sales tax collection method (see above) and the competition between jurisdictions (see below). A second report on The role of digital platforms in the collection of VAT/GST on online sales (OECD, 2019[14]) provides guidance on the available models for enlisting online marketplaces and other digital platforms in the collection of VAT on e-commerce, focusing in particular on the implementation of the vendor collection mechanism for the effective collection of VAT on imports of low value goods. Comparing Europe . The prior tax complexity measures for individual taxes have also been replaced with two new measures for complexity. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. It finally outlines the follow-up work carried out by the OECD to support the consistent and effective implementation of these standards.
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