The business-led think-tank Tax Foundation Europe is urging European policy-makers to take a close look at the disparities between their statutory and effective tax rates, the alignment of which is essential to the effectiveness of a tax system. According to its latest report, published on Tuesday 17 September, the gap between statutory rates and average effective tax rates for personal income tax in the EU varies considerably, affecting the efficiency and simplicity of the tax system.
“Those EU Member States with a smaller gap between top marginal statutory and average effective tax rates for personal income tax enjoy higher tax competitiveness, which in turn helps drive investment and economic growth”, emphasised Santiago Calvo, guest author at Tax Foundation Europe. “Notably, EU Member States like Spain and Germany have reached a high tax rate threshold and as a result, additional increases in statutory rates for personal income tax do not generate a significant increase in tax revenues,” he added.
Simplified tax systems, with fewer deductions and exemptions, combined with broader tax bases, help to reduce tax evasion while improving the efficiency of revenue collection, according to the think-tank. Keeping marginal and average tax rates as aligned as possible also reduces economic distortions and facilitates tax certainty for businesses and individuals.
Read the study: https://aeur.eu/f/dh2 (Original version in French by Anne Damiani)