VAT’s growth has experienced a slowdown in nearly 40 countries, with the average share of VAT/GST/Sales Tax as a percentage of total tax revenues falling from 34% to 32%. This decline in VAT can be attributed to the faster rise of income taxes rather than countries turning away from VAT altogether. It is important to note that this trend is not unique to Ireland but has been observed on a global scale.
The impact of the COVID-19 pandemic and inflation emergency has played a significant role in the decline of VAT. VAT cuts were at their peak in 2022, as governments sought to alleviate the financial burden on individuals and businesses during these challenging times. These liberal VAT cuts were implemented as a response to the crises caused by the pandemic and inflation spikes, resulting in a decrease in indirect tax numbers.
Despite the decline in VAT, revenues from this form of taxation have remained consistent and buoyant. This can be attributed to the fact that finance ministries across the globe continued to apply VAT, albeit at reduced rates. The total revenue take for OECD member states was down from 34.15% to 34.0% in 2022, indicating a slight decrease but still demonstrating the resilience of VAT as a revenue generator.
It is worth noting that corporate income taxes experienced a sharp rise as global economies began to bounce back from the COVID-19 lockdown. This increase in corporate income taxes contributed to the overall tax revenue, offsetting the decline in VAT. As countries started to recover from the economic downturn, businesses saw an increase in profits, leading to higher corporate income tax payments.
Despite the challenges faced by VAT, governments worldwide are expected to continue expanding its implementation. VAT is seen as a positive taxing model, providing a stable source of revenue for governments. Its ability to generate consistent income makes it an attractive option for policymakers.
The approximate dependency on VAT varies across different regions. In South America, Europe, Asia Pacific, and North America, VAT plays a significant role in tax revenues. The specific percentages may vary depending on the country and its economic structure, but VAT remains a crucial component of the overall tax system in these regions.
The Organisation for Economic Co-operation and Development (OECD) plays an active role in researching and assisting member and non-member states in developing tax policies and administrations. As a reputable international organization, the OECD provides valuable insights and guidance to countries seeking to improve their tax systems.
In conclusion, while VAT has experienced a slowdown in growth in nearly 40 countries, it remains a vital component of the overall tax system. The decline in VAT can be attributed to the faster rise of income taxes, as well as the impact of the COVID-19 pandemic and inflation emergency. However, revenues from VAT have remained consistent and buoyant, and governments are expected to continue expanding its implementation. The OECD plays a crucial role in supporting countries in developing effective tax policies and administrations.