Global Trends in VAT/GST and Direct Taxes

S. 60I. Introduction

Tax policies differ considerably around the world. The design of a particular tax system depends largely on the economic conditions, the level of public spending, the constitutional values of a state and the political choices made by policymakers. Irrespective of these determinants it is important to distinguish between the basic objective of revenue generation and other non-fiscal goals of the tax system. These objectives can be achieved by different tax instruments.

Tax rates, as a one of the basic elements of tax provisions, can together with the determination of the tax base influence the level of the tax burden to the largest extent. Moreover, tax rates are also the most sensitive elements of the tax system in the political debate. Obviously, tax rates are not a basic indicator of the tax burden, as a broad structure of credits, allowances and exemptions narrow the tax base. Therefore, to assess the real economic burden of taxation one must use the effective tax rate, which takes into account all factors which influence the level of taxation.

Although modern tax policies have at their disposal a great variety of tax measures which can be used to attain policy obje...