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Global VAT rates on the increase – review the major changes

  • Nov 22, 2012

Global VAT rates on the increase – review the major changes

Since 2007, European VAT rates and international VAT rates have risen rapidly to help cope with the financial crisis.  As governments have taken on increasing levels of debt through bank bail outs and collapsing tax revenues, VAT and GST increases have been the order of the day.

Average EU VAT rate raised from 19.1% to 21.6%

In 2007, Germany was the first country to implement a major recent VAT increase, raising its standard VAT rate from 16% to 19%.  This enabled it to cut labour employment charges, and help improve its productivity relative to other EU countries.  Since then, there has been a rash of similar rises.  Major changes include:

You can review all current European VAT rates in our EU VAT Rate briefing.

It goes beyond the European Union

Raising VAT rates is not limited to Europe.

Over 150 countries around the world have a VAT or similar Goods and Services Tax (GST).

As with Europe, many of these countries have been raising their consumption tax rates to help cope with ballooning sovereign debt piles.  Examples include:

India and China are both overhauling their current VAT / consumption taxes, with ambitions to model their regimes on the current EU system.

This just leaves the US an the only major economy not to operate a VAT system.

 Why do countries raise VAT?

Raising taxes on consumers, voters, is a big political gamble.  So why do governments do this rather than use other taxes?

  • VAT is a tax on consumption, rather than on savings which helps fund investment and future growth
  • If is fast and cheap to collect as it is the role of the companies
  • VAT rises fund reductions in corporation taxes, which helps attract global industry
  • With nervous funding markets threatening to increase borrowing rates, raising consumer taxes is a clear sign of countries’ intent to take on difficult deficit management decisions