Comparing Europe’s Tax Systems: Consumption Taxes

December 2, 2021

Today we examine how European countries rank on consumption taxes, continuing our map series on our recently published 2021 International Tax Competitiveness Index (ITCI). The ITCI measures and compares the competitiveness and neutrality of all 37 OECD countries’ tax systems, looking at corporate income taxes, individual taxes, consumption taxes, property taxes, and the international tax system.

The ITCI’s consumption tax component compares the rate, base, and complexity of the value-added tax (VAT)/sales tax across OECD countries. While in some countries—such as the United States—consumption taxes take the form of a sales tax, all European countries covered in today’s map levy a VAT.

2021 Consumption Tax Systems in Europe Comparing Consumption Tax Systems in Europe 2021 worst Consumption tax systems in Europe Consumption taxes in Europe

According to our Index, Switzerland has the best-structured consumption tax among OECD countries. At a rate of 7.7 percent, Switzerland levies the lowest VAT rate of all European OECD countries. (The United States has the lowest sales tax rate in the OECD at an average of 7.4 percent.) The Swiss VAT is levied on 70 percent of final consumption, making it the OECD country with the fifth broadest consumption tax base. Switzerland’s VAT is the easiest to comply with among OECD countries, requiring on average only eight hours a year in compliance time.

Poland’s VAT, by contrast, is characterized by a high rate (23 percent), relatively narrow base (51 percent of final consumption), and high complexity (172 hours annual compliance time). As a result, Poland ranks last in the ITCI’s consumption tax component.

Click here to see an interactive version of OECD countries’ consumption tax rankings, then click on your country for more information about what the strengths and weaknesses of its tax system are and how it compares to the top and bottom five countries in the OECD.

To see whether your country’s consumption tax rank has improved in recent years, check out the table below. To learn more about how we determined these rankings, read our full methodology here.

Consumption Tax Component of the International Tax Competitiveness Index between 2019 and 2021 (for all OECD countries)
OECD Country 2019 Rank 2020 Rank 2021 Rank Change from 2020 to 2021
Australia (AU) 7 7 7 0
Austria (AT) 11 11 13 -2
Belgium (BE) 26 30 30 0
Canada (CA) 9 8 8 0
Chile (CL) 31 28 29 -1
Colombia (CO) 22 22 20 2
Czech Republic (CZ) 35 35 35 0
Denmark (DK) 17 17 17 0
Estonia (EE) 8 9 9 0
Finland (FI) 13 14 15 -1
France (FR) 20 21 21 0
Germany (DE) 12 10 11 -1
Greece (GR) 32 32 32 0
Hungary (HU) 36 36 36 0
Iceland (IS) 18 19 19 0
Ireland (IE) 24 24 25 -1
Israel (IL) 15 12 12 0
Italy (IT) 25 29 28 1
Japan (JP) 3 3 3 0
Korea (KR) 2 2 2 0
Latvia (LV) 28 27 27 0
Lithuania (LT) 27 25 24 1
Luxembourg (LU) 4 4 4 0
Mexico (MX) 29 26 26 0
Netherlands (NL) 10 15 14 1
New Zealand (NZ) 6 6 6 0
Norway (NO) 19 18 18 0
Poland (PL) 37 37 37 0
Portugal (PT) 33 33 33 0
Slovak Republic (SK) 34 34 34 0
Slovenia (SI) 30 31 31 0
Spain (ES) 14 13 10 3
Sweden (SE) 16 16 16 0
Switzerland (CH) 1 1 1 0
Turkey (TR) 23 20 23 -3
United Kingdom (GB) 21 23 22 1

Source: 2021 International Tax Competitiveness Index.

Note: This is part of a map series in which we examine each of the five components of our 2021 International Tax Competitiveness Index.

 

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A consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible.

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

A property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.