01.12.2011 - Towards a simpler, more robust and efficient VAT system - Green Paper. Given the impact of ageing societies on labor markets, taxation systems will have to be adapted.
Value added tax (VAT) was first introduced in Europe in 1954, in France. In 1967, the Member States of the European Economic Community, as it was then, agreed to replace their national turnover tax systems with a common VAT system. Since then, VAT has been introduced in around 1401 countries worldwide.
The financial and economic crisis has resulted in severe challenges for public finances in many Member States. Several Member States have recently increased VAT rates or are considering it, either as a reaction to the consolidation needs resulting from the crisis or in the context of a longer-term shift towards indirect rather than direct taxation. The latter shift can be rationalised by the relative efficiency of consumption taxes, consumption being a broader and more stable base than profits and incomes. The broader base allows for lower rates, thereby reducing the distortive effects of taxation, with favourable effects on growth and employment.
Moreover, given the impact of ageing societies on labour markets, savings and consumption patterns and public expenditure in the years to come, taxation systems will have to be adapted. The financing of the welfare state may have to rely less on labour taxes and tax revenues from capital income (savings), thereby further arguing in favour of a shift to indirect taxation.
(Read the related document: Green Paper)