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7 June 2006
Consumption Tax Trends
VAT/GST and Excise Rates, Trends and Administration Issues, 2006 Edition
Centre for Tax Policy and Administration:
This publication presents information about VAT/GST and excise duty rates in OECD member countries. It provides information about indirect tax topics such as international aspects of VAT development and application of VAT to small and medium-sized enterprises. It also describes a range of taxation provisions in OECD member countries, such as the taxation of motor vehicles, tobacco and alcoholic beverages. Finally, it presents the structure and excerpts of the International VAT/GST Guidelines.
Main trends in consumption taxes
Consumption taxes are a significant source of revenue for governments. Today, they account for more than 30% of overall taxation in OECD member countries. However, the composition of these revenues has changed over the past thirty years. Thirty years ago they were mainly taxes on specific goods and services such as excise taxes, whereas today general consumption taxes (mainly value added taxes) constitute the majority of consumption tax revenues.
Since 2000, Value Added Tax (VAT) receipts have stabilised as a percentage of both GDP and total taxation. These ratios vary considerably between countries, from the United States and Japan where general consumption taxes account for less than 10 percent of total taxation and less than 2.5 percent of GDP, to Hungary and New Zealand where they account for more than 26 percent of total tax and more than 9 percent of GDP. In the majority of countries, general consumption taxes account for more than 15 percent of total taxation.
Setting Value Added Tax in a Global Context: the challenge
No other tax innovation has spread so widely or rapidly as the VAT. In half a century it has been adopted by more than 130 countries. VAT has become the most widespread general tax on consumption demonstrating its potential to raise tax revenue in a neutral and transparent manner. The United States remains the only OECD member country without VAT, although sales taxes operate at the sub-federal level.
Despite general consistency in the main features of VAT, there are many variations in its structure and how it is implemented. Variations can be found between Member States of the European Union whose VAT laws share the same legislative root. There is a wide range of lower rates, exemptions and special arrangements that are frequently designed for non-tax policy objectives.
These differences can have a determining influence on the performance of the VAT systems in member countries. Indeed, the “C-efficiency ratio” (a performance indicator that compares the VAT revenues to the standard rate) shows that countries with similar standard rates (such as Mexico and Luxemburg) can have a significantly different revenue performance.
The spread of value added tax coincided with the rapid expansion of world trade and blurring of international tax boundaries. The pace of globalisation in the 1990s marked the beginning of a period of rapid change, creating areas of uncertainty and inconsistencies in the application of VAT. Differences in the design of VAT, such as the way place of taxation is determined or the scope of the tax, have had an increasing impact on international trade by creating uncertainty for business, double taxation, involuntary non taxation and distortion of competition.
For electronic commerce, such difficulties were addressed in 2001 by the OECD’s Guidelines on the Place of Taxation. This work has now expanded to tackle the wider issues through development of the International VAT/GST Guidelines.
Taxes on specific goods and services: towards a new philosophy for excise duties
Excise duties raise the majority of revenues from the taxes on specific goods and services. Unlike VAT, they are levied only on specifically defined goods, in particular on three product groups: alcoholic beverages, mineral oils and tobacco products.
When introduced their main purpose was to raise revenue but recently an alternative philosophy has emerged, recognising the application of excise duties as a means of influencing consumer behaviour.
The case put forward in relation to alcohol and tobacco products is that drinking and smoking are health hazards and increased excise duties help to reduce consumption. For mineral oils, reasons for determining consumer behaviour reflect a mixture of energy conservation, transport and environmental issues. Over the last decade, environmental issues have played an increasing role in determining the nature and application of excise duties to, in particular, road fuel.
Table of Contents
Chapter 1. Taxing Consumption
Chapter 2. Consumption Tax Topics
Chapter 3. Value Added Tax/Tax on Goods and Services Yield, Rates and Structure
Chapter 4. Selected Excise Duties in OECD Member Countries
Chapter 5. Taxing Vehicles
Chapter 6. VAT Treatment of Small and Medium-sized Enterprises
Annex 1. Exchange Rates
Annex 2. Extracts from the International VAT/GST Guidelines
Annex 3. Environmentally Related Taxes
List of Figures
1.1. Average tax revenue as a percentage of aggregate taxation, by category of tax
3.1. Standard rates of VAT
4.1. Taxation of alcoholic beverages excise duties per hectolitre of absolute acohol
4.2. Excise on unleaded petrol
4.3. Excise taxes on diesel
List of Tables
3.1. Taxes on general consumption (5110) as percentage of GDP
3.2. Taxes on general consumptio (5110) as percentage of total taxation
3.3. Taxes on specific goods and services (5120) as percentage of GDP
3.4. Taxes on specific goods and services (5120) as percentage of total taxation
3.5. VAT/GST in OECD member countries
3.6. Annual turnover concessions for VAT/GST registration and collection
3.8. Coverage of different VAT rates
3.9. Special VAT taxation methods
3.10. Import/export of goods by individuals
3.11. VAT revenues (5111) as percentage of total taxation
3.12. C-efficiency ratio for VAT 2003
4.1. Taxation of beer
4.2. Taxation of wine
4.3. Taxation of alcoholic beverages
4.4. Taxation of mineral oils (per 1 000 litres of product at 15° C)
4.5. Taxation of tobacco
5.1. Taxes on sale and registration of motor vehicles
5.2. Taxation on use of motor vehicles
A1.1. Table of exchange rates PPP
A3.1. Trends in revenues from environmentally related taxes 1995-2003 in percentage of GDP
A3.2. Trends in revenues from environmentally related taxes 1995-2003 in percentage of total tax revenue
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