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Types of Taxes

 

Introduction

The analysis of the ‘tax mix’, i.e. the composition
of tax revenues, shows that the vast bulk of
revenue raised in the EU – indeed more than 90 per
cent – comes from three main sources: indirect
taxes (VAT, taxes on consumption, production and
imports, excise duties), direct taxes (current taxes on income and wealth, capital taxes) and social
security contributions (SSCs).

There is substantial variation across Member
States in the importance of indirect taxes, direct
taxes and SSCs. In 2008, indirect taxes
accounted for less than 30% in Belgium but for
over 55% in Bulgaria. The share of direct taxes in
total taxation varied from around 21% of total
taxes collected in Bulgaria to over 62% in
Denmark where the social security system is
financed out of general tax revenues. Finally, SSCs
represented only about 2% of total taxation in
Denmark, and also played only a rather small role
in Ireland, the UK, and Malta, but made up almost
45% of the total taxes in the Czech Republic.

Labour taxes

The tax burden on labour is essentially composed of
personal income taxes and social security contributions. In
most Member States the personal income tax contains
several rates.

On average, nearly two thirds of the overall ITR on
labour consists of non-wage labour costs paid by
both employees and employers.
Only Denmark, Ireland and the United Kingdom
have a share of personal income taxes in the total
charges paid on labour income of more than 50%.
In Denmark, the share of social contributions in
government receipts is very low, as most welfare
spending is financed by general taxation.  As a
result, Denmark has only the 11th highest ITR on
labour in the EU, while the ratio of PIT (as a
percentage of total labour costs) is, at around 36%
in 2008, by far the highest of all Member States. In
some of the Member States, namely Romania,
Greece and Slovakia, less than 20% of the ITR on
labour consists of personal income tax.

The tax burden on labour in the European Union
started to grow strongly in the early 1970s,
decelerating only slightly in the 1980s and the first
half of the 1990s. The weighted EU15 average for
the implicit tax rate on employed labour (ITR on
labour) increased from about 28% (1970) to almost
42% (1997). Starting from the late 1990s,
concerns about excessive labour costs prompted
initiatives to lower the tax burden on labour
income, in order to boost demand for labour and
foster work incentives. Some Member States opted
for across the board cuts in taxes or social
contributions, while others focused on targeted
reductions in social contributions for low-wage
and unskilled workers. These cuts in social
contributions were mostly aimed at granting relief
to employers, although some countries have also
implemented substantial cuts in employees’ social
contributions. Reforms of personal income taxes
have varied, including lowering tax rates, raising
the minimum level of the tax exempt income or
introducing specific deductions, allowances or
credits for low-income workers. In 2008, the EU27
average regained its 2001 level, at 36.5%. Seven
Member States have ITRs on labour below the
30% mark and seven are above the 40% threshold.
The pattern of the changes over the period 2000–
2008 is quite diverse across Member States. In
general, the ten Central and Eastern European
Member States that acceded to the EU in 2004 and
2007 show a much stronger decline than the
arithmetic EU27 average over this time period: the
average in these Member States went down by
about 4.4 percentage points since 2000, while the
arithmetic EU27 average decreased by only 1.6
percentage points.

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The form of business you operate determines what taxes you must pay and how you pay them. The following are the four general types of business taxes.

Key taxes that individuals may have to pay include: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty, Value Added Tax and certain other duties.