Glossary:Tax revenue

From Statistics Explained

Total tax revenue is the income a government generates through the taxation of the people. It includes taxes on production and imports, current tax on income and wealth, capital gains tax, and social contributions.

Total tax revenue is an aggregate comprising:

  • taxes on production and imports, such as value added tax (VAT), import duties, excise duties and consumption taxes, stamp taxes, payroll taxes, taxes on pollution, and others;
  • current taxes on income, wealth, etc., such as corporate and personal income taxes, taxes on holding gains, payments by households for licences to own or use cars, hunt or fish, current taxes on capital that are paid periodically, and others;
  • capital taxes, such as inheritance taxes, death duties and taxes on gifts and capital levies that are occasional or exceptional;
  • actual social contributions paid on a compulsory or voluntary basis by employers or employees or the self- or non-employed to insure against social risks (sickness, invalidity, disability, old age, survivors, family and maternity);
  • imputed or implicit social contributions payable under unfunded social insurance schemes (in which employers pay social benefits to their employees, ex-employees or their dependants out of their own resources without creating special reserve for the purpose).

The calculation of total tax revenue must be reduced by the amount of taxes and social contributions assessed as unlikely to be collected.

Taxes may be classified as indirect taxes, such as taxes on production and imports, and direct taxes, such as taxes on income and wealth and capital gains tax, according to the European system of national and regional accounts.

An alternative classification of taxes may be made according to their economic function. Since this split does not correspond fully with the ESA95 breakdown of taxes, it is undertaken specifically for each Member State of the European Union (EU) annually by the European Commission's tax unit (DG TAXUD) and Member States co-operating in the Working Group Structures of Taxation. The results are published in a report entitled 'Taxation trends in the European Union. Data for the EU Member States and Norway'.

Breakdown of taxes by economic functions (based on the sources mentioned above) is as follows:

  • taxes on consumption, i.e. levied on transactions between final consumers and producers and on the final consumption goods, such as VAT, taxes and duties on imports excluding VAT, stamp taxes, taxes on financial and capital transactions, taxes on international transactions, on pollution, under-compensation of VAT, poll and expenditure taxes, payments by households for licences;
  • taxes on labour – on employed labour, i.e. taxes directly linked to wages and mostly withheld at source, paid by employees and employers, including compulsory social contributions and on non-employed labour income, i.e. all taxes and compulsory social contributions raised on transfer income of non-employed people, where these could be identified (e.g. unemployment and healthcare benefits);
  • taxes on capital – defined as taxes on capital and business income that economic agents earn or receive from domestic resources or from abroad (e.g. corporate income tax, tax on income and social contributions of the self-employed, taxes on holding gains) and taxes on capital stock that include the wealth tax (paid periodically on the ownership and use of land or buildings by owners, and current taxes on net wealth and on other assets, such as jewellery and other external signs of wealth), capital taxes, real estate tax, taxes on use of fixed assets, professional and business licences and some taxes on products.

Implicit tax rates measure the actual or effective tax burden levied on different types of economic income or activities that could potentially be taxed. They are computed as the ratio of total tax revenues of the specific economic category (consumption, labour and capital) to a proxy of the potential tax base defined using the production and income accounts of national accounts.

Implicit tax rate on: Definition
consumption all taxes on consumption divided by final consumption expenditure of households on the economic territory;
labour direct taxes, indirect taxes and compulsory actual social contributions paid by employees and employers on labour employed divided by compensation of employees increased by wage bill and payroll taxes;
capital ratio between revenue from all capital taxes, and all (in principle) potentially taxable capital and business income in the economy, such as net operating surplus of corporations and non-profit institutions, imputed rents of private households, net mixed income by self-employed, net interest, rents and dividends, insurance property income.

Statistical data