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Tax Trends: taxation structure varies across EU

Petak, 2 April, 2021
Editorial team

 

The structure of taxation varies quite significantly across the Member States of the EU, according to the findings of a new report.

 

Taxes are either direct or indirect. A direct tax is typically imposed on personal income, business profits, imports and exports, and property. An indirect tax (VAT, import levies or
excise duties) is a tax levied on a material or legal event of accidental or temporary nature and upon a (legal or natural) person that can often be an intermediate and not the person responsible for this event (hence the indirect character of the tax).

 

According to the European Commission’s latest edition of Taxation Trends in the European Union, the structure of taxation varies quite significantly across the Member States.

 

Denmark, for instance, has the highest share of direct taxes in total tax revenues (64.6 %), followed by Ireland and Malta. Norway and Iceland also have relatively high shares of direct taxes. 

 

The 2020 report, which covers all Member States, plus Iceland and Norway, also notes the share of social contributions to total tax revenues is correspondingly low in these countries. In Denmark there is a special reason for the extremely low share of social contributions: most welfare spending is financed out of general taxation. Since this requires high direct tax levels, the share of direct taxation to total tax revenues in Denmark is the highest among all the Member States.

 

The situation is different in Slovakia and Czechia. The tax systems in these two countries have high shares of social contributions in total tax revenues, and relatively low shares of direct tax revenues. Also, the welfare systems in these two countries are funded by social contributions.

 

On the other hand, some Member States have a much lower share of direct taxes. This is the case in Member States that have adopted flat-rate systems with marginal rates below EU average, which typically induce a stronger reduction in direct tax rates than indirect tax rates. 

 

As is the case in Croatia, Bulgaria and Hungry, lower shares of direct taxes are counterbalanced by relatively higher proportions of indirect taxes. However, lower shares of direct taxes in Slovakia, Czechia and Lithuania are counterbalanced by relatively larger shares of social contributions.

 

Worth noting is that nearly half (46.1 %) of the tax revenue (including social contributions) in the entire EU was claimed by the central or federal government. 

 

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