Tax reforms are accelerating worldwide, with the trend towards pushing down corporate tax rates in order to boost investment gaining momentum over the last two years, according to analysis from the OECD
Its report looked at the latest tax reforms across 35 OECD members, Argentina, Indonesia and South Africa. Over the period, significant tax reform packages were introduced in Argentina, France, Latvia and the US, while other countries have introduced tax measures in a more piecemeal fashion.
OECD analysis shows the average corporate income tax rate across the OECD has dropped from 32.5% in 2000 to 23.9% in 2018. While the declining trend in the average OECD corporate tax rate has gained renewed momentum in recent years, corporate tax rate reductions are less pronounced than before the crisis.
Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said: ‘Among the countries that introduced significant corporate tax reforms were a number with high corporate tax rates, where tax reform was long overdue.
‘While these corporate tax cuts have created some concerns of a “race to the bottom”, most of these countries appear to be engaged in a “race to the average”, with their recent corporate tax rate cuts now placing them in the middle of the pack. We will be closely watching how other countries respond to this trend in the future.’
Other common tax reform trends cited by the OECD report include personal income tax cuts designed to alleviate the tax burden on low and middle-income earners. A common strategy has been to increase earned income tax credits, which can achieve dual goals of improving labour market participation and enhancing the progressivity of the tax system.
Overall, VAT rates stabilised, with South Africa being the only country where the standard VAT rate was raised in 2018. High VAT rates have led many countries to look for alternative ways of raising additional VAT revenues, notably through tax administration and anti-fraud measures.
The OECD notes that new excise taxes are being introduced to deter harmful consumption, citing new taxes on sugar-sweetened beverages in Ireland, South Africa and the UK, and the introduction of a tax on cannabis in Canada.
Environmentally-related tax reforms have continued to focus on energy taxes, where efforts have been made to go beyond road transport. Despite the large potential to generate environmental improvements, tax reforms outside of energy and vehicles, such as taxes on waste, plastic bags or chemicals, have been much less frequent, according to the report.
Saint-Amans said: ‘As economic times improve, fiscal policy choices should avoid the risk of excessive pro-cyclicality and focus on supporting the longer-term drivers of growth and equity.
‘Continued international cooperation will also be important to continue the fight against international corporate tax avoidance, in line with the commitments made by countries to implement the minimum standards and recommendations agreed upon as part of the OECD/G20 base erosion and profit shifting (BEPS) project.’
Report by Pat Sweet