Part I

Overall tax revenue

(essentially pensions and social security benefits) range

from significant to negligible. This primarily reflects
the choice made in the different Member States to
provide social benefits and pensions either on a gross
or a net basis.
Overall, the taxes levied on (employed) labour income,
usually withheld at source form bigger source of
revenue, contributing almost 50 % of receipts, followed
by consumption at roughly one third and then capital at
around one fifth.

Taxation of consumption

Weight of VAT in taxation of consumption

O
v
e
r
a
l
l

Not surprisingly, the VAT component is the largest

accounting for more than half of the overall indicator's
value. However, non-VAT taxes are not negligible;
their share in the ITR ranges from 26.6 % in Sweden to
41.4 % in the United Kingdom. Taxes on energy
(typically, excise duties on mineral oils), tobacco and
alcohol make up, on average, around one quarter of the
revenue from consumption taxes. The differences in
consumption of excisable goods are such that their
revenue effects go well beyond the spread in tax rates:
in percent of GDP Bulgaria raises from alcohol and
tobacco excise duties about five times as much revenue
as the Netherlands.

t
a
x

Increase of consumption taxes in 2010

One area where the onset of the economic and financial
crisis has had a strong impact has been consumption
taxation. As detailed in the following, there has been a
broad increasing trend in rates since 2009.

Graph 1.8: Decomposition of the ITR on Consumption

2010

r
e
v
e
n
u
e

35%

30%

25%

Data for the ITR on

significantly affected by
consumption taxes, which
trend since 2007, increased
1.7).

consumption (9), although

the cycle (10), show that
had been on a downward
sharply in 2010 (see Graph

20%

15%

10%

5%

0%
DK SE LU HU NL EE

Graph 1.7: Implicit tax rate on consumption

1995-2010, in %

FI

VAT component

SI BG IE

AT BE CZ PL DE FR RO MT CY UK LT SK PT LV

Energy component

Tobacco and alcohol component

IT

EL ES

EU27

Residual

Source: Commission services

23
23

Sharp hikes of VAT rates over the last four

years

22
22
21
21
20
20
19
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
EU-27

EA-17

Source: Commission services

The upward trend in 2010 was quite broad; compared

with the year before; the ITR increased in most of the
Member States (see Table 77 in Annex A). Only in
eight countries the indicator decreased. In four cases
(Denmark, Germany, Cyprus and Hungary) did the
ratio decrease very marginally, while in Estonia, Malta,
Austria and Finland the drop was relatively marked,
about half a percentage point.
(9)

Implicit tax rates, in general, measure the effective average tax burden on
different types of economic income or activities, i.e. on labour, consumption
and capital, as the ratio between revenue from the tax type under
consideration and its (maximum possible) base. The ITR on consumption is
the ratio between the revenue from all consumption taxes and the final
consumption expenditure of households.
10
( ) As discussed in the 2010 edition of this report the sharpness of the drop in
2008-2009 was probably the result of a combination of factors, such as a shift
in consumption patterns towards primary goods, typically subject to lower VAT
rates, or involuntary inventory build-ups by businesses, which due to the
severity of the downturn at the end of 2008 might have led to significant VAT
refunds by tax administrations

The broad rise of the ITR on consumption in 2010 can

be largely attributed to hikes of VAT rates. Stagnant
since 2002, VAT standard rates have often increased
from 2009 onwards (11). The EU-27 average has risen
strongly by 1.5 points in only four years and currently
stands at 21 %.
Another aspect is the rapid spread to a large number of
countries. While in 2008 only Portugal changed the
standard VAT rate, six did in 2009 and another eight
countries increased their rates in 2010 (among which
Greece by four points and Romania by five).
(11) Only in two cases was the VAT rate decreased. In the United Kingdom the rate
was temporarily cut by two points in 2009 in order to support consumption and
in Ireland the rate was decreased by half a point in 2010 after a temporary
increase in 2009. Both countries are currently applying higher rates.

Taxation trends in the European Union

27