Comparing Europe’s Tax Systems: Consumption Taxes

October 24, 2019

Today we examine how European countries rank on consumption taxes, continuing our map series on our recently published 2019 International Tax Competitiveness Index (ITCI). The ITCI measures and compares the competitiveness and neutrality of all 36 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.

Click the link below 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.

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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 68 percent of final consumption, making it the OECD country with the sixth 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), narrow base (44 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.

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 2017 and 2019 (for all OECD countries)

Source: 2019 International Tax Competitiveness Index

OECD Country 2017 Rank 2018 Rank 2019 Rank Change from 2018 to 2019
Australia (AU) 8 7 8 -1
Austria (AT) 11 10 11 -1
Belgium (BE) 25 25 26 -1
Canada (CA) 9 9 7 2
Chile (CL) 30 30 28 2
Czech Republic (CZ) 33 34 34 0
Denmark (DK) 18 17 17 0
Estonia (EE) 7 8 9 -1
Finland (FI) 13 13 15 -2
France (FR) 20 20 21 -1
Germany (DE) 12 12 10 2
Greece (GR) 31 31 31 0
Hungary (HU) 35 35 35 0
Iceland (IS) 17 18 19 -1
Ireland (IE) 23 23 23 0
Israel (IL) 14 14 13 1
Italy (IT) 21 24 27 -3
Japan (JP) 3 3 3 0
Korea (KR) 2 2 2 0
Latvia (LV) 29 26 29 -3
Lithuania (LT) 27 28 24 4
Luxembourg (LU) 4 4 4 0
Mexico (MX) 26 27 25 2
Netherlands (NL) 10 11 12 -1
New Zealand (NZ) 6 6 6 0
Norway (NO) 19 19 18 1
Poland (PL) 36 36 36 0
Portugal (PT) 32 32 32 0
Slovak Republic (SK) 34 33 33 0
Slovenia (SI) 28 29 30 -1
Spain (ES) 15 15 14 1
Sweden (SE) 16 16 16 0
Switzerland (CH) 1 1 1 0
Turkey (TR) 24 22 20 2
United Kingdom (GB) 22 21 22 -1
United States (US) 5 5 5 0

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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 Value-Added Tax (VAT) is a consumption tax assessed on the value added in each production stage of a good or service. Every business along the value chain receives a tax credit for the VAT already paid. The end consumer does not, making it a tax on final consumption.

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.

A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.