Definition: Implicit tax rates (ITR)
Implicit tax rates (ITR) measure the effective average tax burden on different types of economic income or activities, i.e. on labour, consumption and capital. ITR express aggregate tax revenues as a percentage of the potential tax base for each field.
ITR on labour considers all personal income taxes, payroll taxes and compulsory social security contributions as labour tax revenues and, as the tax base, the total amount of compensation of employees in the economy. The average may conceal important variation in the tax burden across the income distribution.
ITR on consumption considers taxes levied on transactions between (final) consumers and producers and on the (final) consumption of goods and the tax base is defined as the final consumption expenditure of households on the economic territory.
ITR on capital includes taxes levied on the income earned from savings and investments by households and corporations and taxes related to stocks of capital stemming from savings and investment in previous periods. The denominator of the capital ITR aims to approximate the world-wide capital and business income of Member States' residents for domestic tax
purposes. Trends in this capital ITR reflect a wide range of factors and it should be interpreted with caution.
Eurostat, News Release, Taxation in the EU from 1995 to 2003 EU25 overall tax burden at 40.3% of GDP in 2003 - Labour accounts for half of tax revenue,
134/2005 - 21October 2005, Luxembourg, 2005