The Organisation for Economic Co-operation and Development (OECD) reported in early December 2022 that tax revenues bounced back in 2021 as OECD economies recovered from the initial impact of the COVID-19 pandemic.

A notable and new trend reported is that 26 countries have introduced new solutions to collect Value-added Tax (VAT) on imported goods bought through e-commerce.

Revenue Statistics 2022, which presents tax revenue data for the second year of the COVID-19 pandemic, shows that the OECD average tax-to- gross domestic product (GDP) ratio rose by 0.6 percentage points in 2021, to 34.1 per cent, the second-strongest year-on-year increase since 1990.

The report also shows that tax-to-GDP ratios increased in 24 of the 36 OECD countries for which 2021 data on tax revenues were available, declined in 11 and remained unchanged in one.

Tax revenues increased by 12.8 per cent in nominal terms on average across the OECD between 2020 and 2021 as economies rebounded from the pandemic, exceeding nominal post-pandemic GDP growth (10.5 per cent).

Corporate income tax (CIT) and VAT drove the recovery in tax revenues in 2021. CIT revenues increased by 0.5 percentage point of GDP, while VAT revenues rose by 0.4 percentage point of GDP. Revenues from personal income tax (PIT) remained unchanged as a share of GDP in 2021, while social security contributions declined by 0.2 p.p.

The OECD notes that tax policy in 2021 was geared towards promoting a recovery in consumption and investment. CIT measures implemented in 2021 aimed to stimulate investment and innovation, especially in the green economy, while changes to labour taxation were primarily intended to boost economic growth and promote equity.

Withdrawn

Notably, many of the emergency tax measures introduced in 2020 to support households and businesses during the pandemic were withdrawn in 2021, as economies rebounded and employment recovered to pre-pandemic levels in most countries.

“The recovery in tax revenues in 2021 reflects the strength of OECD economies as they bounced back from the pandemic,” said Grace Perez-Navarro, director of the OECD Centre for Tax Policy and Administration.

“There is, however, concern that this rebound may prove to be short-lived, in the face of mounting global economic headwinds, driven by rising energy costs and inflation.”

The rise in revenues from VAT in 2021 comes after VAT revenues remained unchanged in 2020. Excise taxes declined slightly in 2020 and 2021, and property taxes remained unchanged as a share of GDP in both years.

Most OECD countries reduced specific VAT rates in 2020 to facilitate health-care responses and to support businesses and households during the pandemic. Most of these reductions were withdrawn in 2021, except for those related to medical supplies used to respond to the pandemic.

Consumption Tax Trends 2022, also released last week, highlights that as e-commerce continues to grow, most OECD countries have implemented reforms to ensure that VAT is collected effectively on online sales, in line with OECD standards, ensuring a level playing field between bricks-and-mortar businesses and online merchants.

Measures to collect VAT on online services — such as applications and video-streaming — which have now been adopted by almost all OECD countries that have a VAT.

Thirty-one out of 37 OECD countries with a VAT have now implemented digital reporting requirements, often requiring the electronic transmission of detailed transactional information in real time or periodically, to enhance VAT compliance.