Global VAT rates on the increase – review the major changes
- 22 November 2012
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:
- Spain VAT increased from 16% in 2009 to 21% by 2012
- UK Raised VAT 2.5% to 20% in 2011
- Italy increased VAT 1% to 22% 1 October 2013
- Greece VAT rose from 19% to 23% by 2010
- Hungary Hit the EU record high of 27% VAT by 2012
- Netherlands Increased VAT from 19% to 21% in 2012
- Germany imposed a 3% rise in VAT to 19% in 2007
- Finland Increased VAT to 24% by the start of 2013
- Cyprus will raise VAT 2% to 19% by 2014
- France Will raise its standard VAT rate from 19.6% to 20% in 2014
- Luxembourg will raise VAT from 15% in Jan 2015
- Slovenia raised VAT from 20% to 22% in July 2013
- Montenegro raised VAT 2% in July 2013
- Croatia increased VAT 2% to 25% in 2012
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:
- Israel increases VAT 1% to 18% in 2013
- Japan To double consumption tax to 10% by 2015
- New Zealand Increased GST from 12.5% to 15%
- Canada Raising GST in most Provinces
- Mexico VAT raised 1% to 16% in 2010
- Pakistan increased GST 1% June 2013
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