We intend to clarify what the tax rate is, and how it is calculated. Given that the political discussion about raising or lowering taxes is the order of the day, it is extremely important to take this concept into account.
If we wanted to define the tax rate, we could say that it is the economic concept that determines the weight of public revenue in the wealth of a country.
Let’s see what is the situation of the tax rate in Spain, and how we compare with other countries in our economic environment. Since the tax rate, especially if it is high, helps to maintain essential and quality services of the state, such as pensions, health, education, defense, etc..
But on the other hand, the way it affects the business sector, the promotion of the creation of companies and above all the creation of employment determines its maintenance in the long term.
What is the tax rate?
Also known as tax burden or tax pressure, it is the percentage of revenue collected by governments in the form of taxes from both individuals and companies in relation to the Gross Domestic Product (GDP).
As taxes are the main source of public revenue in a country, the tax burden index is normally used to determine the weight of the public sector in the economy at the national level.
How is the tax rate calculated?
Tax rate tells us how much tax is paid by consumers and businesses. It is therefore calculated by dividing the amount collected by GDP and multiplying by 100 to convert it into a percentage.
It is very important to note that the tax rate is measured taking into account the actual payment of taxes. And not the amount stated in the legislation. This means that, if the citizens of a state evade paying taxes, the tax rate drops. Even if the state’s taxes were nominally high.
So a strategy often used by countries with high tax evasion is to raise taxes on those citizens who are less likely to evade. These are usually individuals who are salaried or dependent on a company payroll, as well as civil servants.
Therefore, in Spain, the people who contribute to the Social Security are the ones who bear the heaviest burden of the contribution. These contributions account for 34% of the amount collected, clearly higher than the 26% average in OECD countries as a whole.
How Spain compares with the rest of the world
According to data from the Organisation for Economic Co-operation and Development (OECD), Spain ranks 16th on the list of countries with the highest tax rates worldwide. However, most countries with a developed economy have a high tax rate.
However, there are considerable differences between these same countries, since we find a range that varies between 20% (even less in some cases) and just over 50% of the corresponding GDP.
In this case we can see the countries with the highest tax rate, such as:
- Belgium: 51.5%.
- Germany: 49%.
- Austria: 47.3% France
- France: 46.6% Italy: 46% Italy: 46
- Italy: 46%.
And the countries with a lower tax rate:
- Colombia: 0%
- Chile: 7%.
- New Zealand: 19.1% Mexico: 20.2%
- Mexico: 20.2%
- Switzerland: 22.1%.
And where highly competitive countries, such as the U.S. and Australia, are around 28%.
Tax rate in Spain
Currently, according to OECD data, the tax rate in Spain is 39.3%. That is, more than a third of the income of each Spaniard is taken by the state, and its local and regional delegations, etc.
In contrast, the average for the countries in the organization is 34.6%. This is about five points more than the average for the countries in the organization, which is 34.6%.
Looking at the same data, we see that companies, through the social security contributions corresponding to their workforce, allocate 23% of the total net salary of their employees. This is a great distance from the OECD average, which is 13.1%.
Then, the contribution made by the workforce in the public sector is remarkably high.
