How high tax rates lead to high tax evasion

How high tax rates lead to high tax evasion

The rate of tax rates in the countries of Europe show a correlation with the level of per capita tax evasion, according to research by the University of London (Richard Murphy).

The study, titled “The European Tax Gap”, concluded that the highest rate of tax evasion per capita is linked to the existence of a high tax rate. Certainly, the survey data are about 2015, but the aim of the survey is not to show the size of evasion per country, but the correlation of these two factors.

On this basis, Italy tops the list with a tax rate of 43% and € 3,147 per capita tax evasion, Denmark with 46.5% taxing resulting in € 3.066 per capita tax evasion, Greece with a 36.6% tax and € 1.845 per capita tax evasion, while Belgium with a 45.2% tax rate has € 2,688 per capita tax evasion.

According to the figures and their processing in the “Study & Reports on VAT gap” of the competent Commission Directorate-General (2018), the correlation between the amount of indirect taxes – mainly VAT – is similar, but there are also many differences.

High indirect taxation through VAT leads again to high rates of tax evasion but not in all countries. It is typical that Romania with 20% VAT rate has the highest tax evasion in Europe with 35.9%, while Greece with one of the highest VAT rates (24%) is second in tax evasion (from VAT) with 29.2%. Italy with 22% VAT had a tax evasion of 25.9%, while Denmark with the highest VAT at 25% had a tax evasion of 8.5%.

With regard to VAT evasion, there is also an older survey which included 33 European SMEs, called “Grand Theft Europe”, which concluded that from 2009 to 2016 there was a tax evasion of 1,260 trillion from VAT, mainly by the triangular transaction method and the exploitation of the virtual transfer of goods between many European Union countries. It is worth mentioning that in this survey Greece and Italy are among the countries with the largest loss of VAT revenue (29.22% and 25.9%, respectively)./ibna