The latest study by the Organisation for Economic Co-operation and Development (OECD) shows the average tax burden in OECD countries, measured as the ratio of tax to gross domestic product (GDP), is back up to the same levels as in 2000 after a brief reduction between 2001 and 2004. But over a 40-year time span, there was no widespread shift in the tax burden from direct to indirect taxes, contrary to some public perceptions, because growth in VAT revenues has been offset by a reduction in specific consumption taxes, mainly excise duties.
UK had the 16th greatest share of indirect tax among the OECD countries, behind the Netherlands, Finland and Czech Republic, indirect tax accounting for about 30% of revenue and VAT just less than 20%. The highest share of indirect tax was in Mexico, at close to 60%, and the lowest share was in the US, which only has retail sales tax, at less than 20%.
Between 1965 and 2006, as VAT spread from three to 29 of the 30 OECD countries, the revenue share of VAT and sales taxes in all OECD countries rose from 13.6% to 18.9%, while total revenue from all taxes on consumption fell from 38.4% to 31.9% because of the drop in revenues from excise duties and other specific taxes.
The sharpest rise in the 40-year period was in social security contributions – up from 17.6% to more than one-quarter of total revenue from taxes; followed by corporate income tax – up from 8.8%, to 10.3%. All other taxes accounted for a falling share of total tax revenue – personal tax, down from 26.2% to 24.6%; followed by property tax, down from 7.9% to 5.6% and payroll tax, down from 1%, to 0.8%.
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