Summary of the “Tax Policy Reforms 2024” report by the OECD and selected partner economies
- Macroeconomic Context and Tax Revenue Trends:
- The report highlights the macroeconomic conditions up to the end of 2023, noting global GDP growth of 3.1% in 2023, which is below the 2010s average.
- Inflation peaked in late 2022 and has been declining, but remains high in some regions.
- Tax-to-GDP ratios decreased in most OECD countries in 2022, with significant variations across different regions and income groups.
- Personal Income Tax (PIT) and Social Security Contributions (SSCs):
- Many jurisdictions continued to cut PIT rates to support households amidst rising living costs, while a growing number increased SSC rates to fund social protection programs.
- Reforms aimed at improving tax progressivity included increasing top PIT rates in some countries and providing relief for low- and middle-income households.
- Several countries introduced or expanded tax incentives to support employment, specific industries, and housing affordability.
- Corporate Income Taxes (CIT) and Other Business Taxes:
- The trend of decreasing CIT rates has halted, with more jurisdictions increasing CIT rates in 2023 to raise revenues.
- Many countries introduced or expanded tax incentives to promote investment, innovation, and environmentally friendly technologies.
- Significant progress was made towards implementing the Global Minimum Tax (GMT) to ensure a global floor on effective tax rates for large multinational enterprises.
- Taxes on Goods and Services:
- Temporary VAT rate cuts continued to be used to mitigate the impact of rising prices on energy and basic goods.
- Some jurisdictions increased their standard VAT rates to raise revenues, while others used VAT reductions to support specific sectors like tourism and culture.
- Reforms also focused on modernizing VAT systems to better capture economic activity in the digital economy.
- Environmentally Related Taxes:
- Despite cost-of-living pressures, several high-income countries increased carbon taxes to support the transition to a low-carbon economy.
- Many jurisdictions reduced energy taxes temporarily to alleviate the impact of high energy prices on households.
- Vehicle taxes were adjusted to promote low-carbon vehicles, with some countries increasing taxes on traditional vehicles while maintaining or enhancing incentives for electric vehicles.
Key discussion points on VAT
- Temporary VAT Rate Cuts:
- Many countries continued to implement temporary VAT rate reductions to mitigate the impact of high inflation on energy prices and essential goods.
- These measures were initially set for a short duration but were frequently extended as energy prices remained elevated.
- Sector-Specific VAT Reductions:
- Temporary VAT reductions were also applied to support specific sectors heavily affected by economic volatility, such as hospitality, restaurants, and tourism.
- Agricultural products and other essential services also benefited from reduced VAT rates to alleviate cost pressures.
- Permanent VAT Rate Changes:
- Some jurisdictions made temporary VAT rate reductions permanent or introduced open-ended VAT rate reductions for specific items like electricity, natural gas, and renewable energy products.
- This move aimed to provide long-term relief and support sustainable energy use.
- VAT Base Broadening and Digital Economy Adaptations:
- Several countries broadened their VAT bases to include more goods and services, especially targeting the digital economy.
- Reforms included requiring non-resident digital service providers to register for VAT and expanding VAT collection on low-value imported goods.
- Environmental and Health-Related VAT Adjustments:
- A trend towards using VAT systems to promote environmental sustainability was observed, with reduced rates or exemptions for electric vehicles, solar panels, and other green technologies.
- Health-related excise taxes, particularly on tobacco and sugary drinks, were increased in several countries to raise revenues and promote public health.
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