/

Cyprus has largest tax-to-GDP rise

909 views
2 mins read

Cyprus had the largest rise in the EU in its tax-to-GDP ratio, meaning the sum of taxes and net social contributions as a percentage of gross domestic product, according to Eurostat data.

The country’s tax-to-GDP ratio increased from 34.0% in 2020 to 36.0% in 2021.

Overall, the EU’s tax-to-GDP ratio stood at 41.7% in 2021, a slight increase compared to 2020 (41.1%).

This increased revenue from taxes and social contributions in the EU corresponds to a €520 bln hike from 2020 to €6058 bln.

Compared with 2020, the tax-to-GDP ratio increased in 20 EU member states but decreased in five, notably in Hungary (from 36.1% in 2020 to 34.0% in 2021) and Croatia (from 36.9% to 35.8%).

The highest shares of taxes and social contributions as a percentage of GDP in 2021 were recorded in Denmark (48.8%), France (47.0%) and Belgium (46.0%).

At the opposite end of the scale, Ireland (21.9%) and Romania (27.3%) registered the lowest ratios.

In 2021 tax revenue was impacted by the partial re-opening and recovery of the economy.

The increase in government tax revenue was due to this economic recovery (automatic stabiliser effects).

Another reason for the increase is that active tax-cutting measures introduced in 2020 to mitigate the economic downturn caused by the COVID-19 pandemic were partially reversed in 2021.

Almost all Member States introduced measures for deferral tax and social contribution payments in 2020.

This means that taxes were accrued as revenue in 2020 but will only be paid in the following periods, leading to an increase in the accounts receivable of the general government.

Some of the tax deferral measures continued into 2021.

As a percentage of GDP, EU and euro area tax revenue increased in 2021.

This continued the trend since 2010, with two exceptions in 2015 and 2019, when the tax-to-GDP ratio decreased slightly.

In 2021, tax revenue made up nearly 90 % of total general government revenue in the European Union.

In the EU, taxes on production and imports accounted for 13.8% of GDP and current taxes on income, and wealth, was 13.3% of GDP, while net social contributions stood at 14.3%.