This week saw the release of the Eurostat and European Commission publication on tax trends in the European Union. According to the text, the tax burden in EU member states in 2005 was 39.6 percent of gross domestic product (GDP). Compared to 2004, this is a rise of 0.4 percentage points.The tax burden in Estonia in 2005 was 30.9 percent of GDP, a decrease of 0.5 percentage points on 2004. On the one hand, the proportion of direct taxes in GDP decreased as a result of the rise in the tax-free threshold and the fall in the rate of income tax; the proportion of social insurances payments also decreased. On the other hand, rapid growth in the receipt of VAT brought about an increase in the proportion of indirect taxes in GDP.
Compared to other member states of the European Union, the level of tax burden in Estonia is among the lowest. While the proportion of GDP represented by indirect taxes is close to the EU average, the proportion of social insurance payments is slightly smaller and the proportion of direct taxes significantly smaller than the average.
The EU member states with the highest tax burden in 2005 were Sweden and Denmark at 51.3 and 50.3 percent of GDP, respectively. The lowest burden was in Romania, at just 28 percent of GDP. At less than 30 percent were also Lithuania (28.9), Slovakia (29.3) and Latvia (29.4).
The biggest decrease in tax burden between 1995 and 2005 could be seen in Slovakia – 10.3 percentage points (from 39.6 to 29.3 percent). Estonia’s tax burden fell in the same period by 7 percentage points (from 37.9 to 30.9 percent) and Latvia’s by 3.8 percentage points (from 33.2 to 29.4 percent). In sixteen member states the tax burden has increased over the last ten years, with the biggest growth in Cyprus (from 26.7 to 35.6 percent) and Malta (27.3 to 35.3 percent).
Taxation trends in the European Union: 1995-2005 (formerly known as Structures of the Taxation Systems in the European Union) is published annually. In addition to a general analysis and comparison of the tax burdens of member states, the publication also presents figures related to the implicit tax ratio for labour, consumption and capital. The burden arising from environmental taxes is also thoroughly examined.
The Eurostat press release about the publication can be found at http://epp.eurostat.cec.eu.int/pls/portal, while the publication is available online at http://ec.europa.eu/taxation_customs/taxation/gen_info/economic_analysis/tax_structures/index_en.htm.
More detailed information about the taxation systems in different countries can be obtained from the public database completed this May as a joint project of the European Commission and EU countries, which includes almost all member states (with the exceptions of Cyprus, Ireland, Malta and Portugal) and all of the most important taxes. Through its search engine you will find information about different aspects of taxation such as tax rates, main deductions, tax revenue received and more. The database is located at http://ec.europa.eu/taxation_customs/taxation/gen_info/info_docs/tax_inventory/index_en.htm.
Source: Ministry of Finance