Tax compliance and collection: More action required
By Tanguy Verhoosel | Thursday 31 May 2012
Member states must make more effort to improve their taxation systems, the European Commission has said in a series of recommendations, issued on 30 May. The EU executive was satisified that, in general, member states had taken note of its suggestions on taxation in 2011, but nonetheless more action is required.
Presenting the recommendations, Taxation Commissioner Algirdas Semeta said: “The quality of taxation systems can be a decisive factor in member states’ efforts to consolidate their budgets and establish sustainable economic growth”.
The recommendations focus on five key areas.
Firstly, taxation of labour remains too high in many countries, the Commission says, criticising member states’ reluctance to make use of ‘shifting taxes’ to move towards other forms of taxation that are more favourable to growth.
The Commission particularly wants to raise environmental taxes, which it says will encourage the creation of new businesses and jobs, and innovation. However, “many member states still do not explore this potential,” said Commissioner Semeta, citing the example of France, where environmental taxes only accounted for 1.8% of the GDP in 2010 (compared with 2.2% in 2000) - while the European average is 2.6%.
The third area is real estate taxation, which presents less of an obstacle to economic growth than taxation of labour. However, the Commission says it is advisable to eliminate forms of taxation that encourage people to get into debt, and therefore encourage the creation of real estate bubbles. Germany comes under fire from the Commission in this context, since revenues from real estate taxation (0.85% of GDP) are significantly lower in this member state than the average in OECD countries (1.8%).
The quality of taxation systems should also be improved. Systems that are full of loopholes and other tax exemptions deprive member states of receipts and create social inequality, the Commission highlights, calling on member states to enlarge their tax bases wherever possible. Spain is encouraged to re-work its VAT system, which is characterised by the “wide application” of a super-reduced rate of 4%, a reduced rate of 8% and numerous tax exemptions.
Finally, the Commission emphasises the need to strengthen the fight against fraud and tax evasion, which deprive public treasuries of some €1,000 billion of revenue annually.
“Many member states - particularly Italy and Greece - could do much more to improve respect for tax rules and collection,” said Semeta, adding that better coordination of the fight against fraud at EU level is, in this context, “crucial”.