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A trend of decreased taxes on businesses and individuals during the pandemic and the subsequent inflationary period is now showing signs of deceleration and reversal, according to a new OECD report.
Tax Policy Reforms 2024 describes the tax reforms implemented in 2023 across 90 jurisdictions, including all OECD countries. It also identifies longer-term reform trends, highlighting how governments have used tax policy to respond to consecutive crises, high levels of inflation, and long-term structural challenges.
The report outlines the evolving tax policy landscape as governments strive to balance the need for additional domestic resources with measures to alleviate the cost-of-living crisis affecting households and businesses. It shows a shift from the tax-decreasing reforms introduced during the COVID-19 pandemic and the subsequent period of high inflation to more balanced approaches involving rate increases and base broadening initiatives.
“Tax reforms have been one of the key policy tools used by governments to protect households & businesses from decade-high inflation levels and the economic impact of the COVID-19 pandemic,” OECD Secretary-General Mathias Cormann said.
“We are now seeing the policy focus shift, and it should continue shifting, towards creating the fiscal space needed to respond to future shocks and support the long-term structural transformations of our economies and societies are facing, including digitalisation and AI, evolving patterns of trade, climate change, population aging.”
The new OECD report highlights data suggesting that the trend of decreasing corporate income tax (CIT) rates observed since the Global Financial Crisis is reversing, with more jurisdictions implementing CIT rate increases than decreases in 2023. With CIT rates at historic lows, countries and jurisdictions seeking favourable CIT treatment opted for base-narrowing measures instead of rate decreases.
Furthermore, significant progress has been made towards implementing the Global Minimum Tax (GMT), which establishes a worldwide 15% floor for the effective tax rates of large multinational enterprises. As of April 2024, 60 jurisdictions had announced that they are considering or taking steps towards implementing the GMT, with 36 jurisdictions taking steps towards an application of the GMT starting in 2024, and some expect to implement legislation taking effect from 2025.
While personal income tax (PIT) cuts continued to support economic recovery and household incomes, there is an emerging trend towards increasing social security contributions (SSCs) to address demographic shifts, rising healthcare costs, and social protection needs.
In particular, the share of the population aged 65 and over across OECD countries has doubled in recent decades and is projected to increase further, along with associated spending needs such as for long-term care. PIT reforms have focused on supporting low- and middle-income households, with a few countries increasing their top PIT rates.
Following significant value-added tax (VAT) relief measures on energy products to counter rising energy costs and inflation, the pace of VAT cuts is now slowing, and some jurisdictions are scaling back VAT relief. Six jurisdictions increased their standard VAT rate in 2023.
The use of reduced VAT to promote lower-carbon economies, through reduced rates for electric vehicles or zero rates for solar panels, is increasingly common. Several countries also extended tax incentives for electric vehicles at the time of purchase. Concurrently, a number of countries increased their carbon taxes to support the transition to a low-carbon economy.
In order to stimulate healthy lifestyles and improve public health, several high- and upper-middle-income countries strengthened health-related excise taxes on tobacco, alcoholic beverages, sugar-sweetened beverages, and gambling.
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