Annual comparative review of countries’ tax of goods and services
Included within the OECD’s annual Tax Policy Reforms: OECD and Selected Partner Economies are an analysis of VAT and GST strategies of 90 countries which are part of the OECD and G20’s BEPS reform programme. As the OECD points out, VAT, GST and sales taxes now account for over 30% of tax revenues.
Key issues reviewed by the report include:
- Temporary VAT cuts to alleviate the effects of inflation, which are now being unwound
- VAT rate policies to promote the transition to a lower carbon economy
- Rate rises to help cover COVID-19 deficits
- Simplifications of reduced rates, including consolidation
- Closing loopholes on low-value consignment VAT exemptions
- Rising VAT registration thresholds to reduce the compliance burden and recognise inflation pressers
- Bringing digital services VAT obligations to more countries.
Reduced VAT to fight inflation and climate threats
Countries are using temporary VAT rate cuts to manage rising prices, especially in energy and essential sectors like food and healthcare. These reductions aim to alleviate household budgets and support vulnerable sectors affected by economic shocks, such as tourism and hospitality. Many countries also apply VAT cuts to promote environmental sustainability, such as on electric vehicles. While temporary, some VAT reductions have been extended or made permanent. Additionally, excise taxes on tobacco, alcohol, and sugary drinks have increased in several countries. VAT remains a crucial revenue source, with reforms adapting to digital economies and international standards.
VAT reform for wider social objectives
In 2023, various countries introduced VAT reforms aimed at enhancing economic resilience, promoting sustainability, and supporting key sectors. Many jurisdictions lowered VAT rates on essential goods and services, especially in health, tourism, and cultural industries. Italy, North Macedonia, and the UK extended VAT reductions on menstrual hygiene products, while other health-related products like defibrillators and Covid-19 tests in Ireland also saw reduced rates.
Support to service and production sectors
Countries like Spain and Greece lowered VAT on hygiene products, contraceptives, and disability-related building modifications. The tourism sector benefited from lower VAT on restaurant services, accommodation, and cultural events in countries like Greece, Hungary, and Lithuania.
Agriculture also received attention, with countries like Jamaica and Uruguay implementing VAT exemptions and refunds to encourage local production. Construction and housing sectors saw VAT relief in Belgium, Saint Lucia, and Canada, particularly to support affordable housing. Countries also targeted environmental sustainability, with several jurisdictions reducing VAT on solar panels, heat pumps, and electric vehicles. Barbados and Jamaica introduced exemptions to encourage the use of sustainable energy sources.
Revenue VAT rises
Despite these reductions, some countries raised VAT rates to boost revenue. North Macedonia and Romania increased VAT on luxury goods and sugary drinks. Estonia, Turkey, and Luxembourg increased standard VAT rates to address budgetary challenges. Additionally, countries like the Bahamas and Ireland expanded their VAT bases, while others, including Sweden and Bulgaria, raised VAT registration thresholds to ease compliance for small businesses.
Bringing digital into VAT net
VAT reforms also focused on the digital economy. Countries like Kenya, Japan, and North Macedonia introduced VAT on digital services provided by non-resident suppliers, aligning with OECD standards. As digital trade grows, these reforms aim to modernise VAT systems and ensure tax compliance.
