Why European Countries High Tax Rates – European countries are said to have the most amount taxes. Most of the time, people suffer extreme financial constraints due to heavy taxes. Moreover, Europe is also not the ideal location for international people to settle as it is very costly to live there.
Taxes in European countries:
When we consider taxes of Europe, we can not concentrate on the word tax as a whole. Various taxes differ from each other. We have to explain taxes in terms of all things which include housing, foods, clothes and several other things. Moreover, there is a lot of variation in tax rates in different countries of Europe. Some countries are underdeveloped, and so they have lower tax rates. It means that anyone who lives in those underdeveloped countries has to pay less for living and other costs such as food and living. An example of underdeveloped countries in Europe is Moldova, Ukraine, and Bosnia. These countries have lower GDP and also have lower tax rates.
Most of Europe is developed and is much more advanced than most of the countries in the world. Developed countries have higher tax rates as the government needs a lot of funds to take care of the extra facilities that it provides to the citizens. Some developed countries are Switzerland, Ireland, Greenland, Norway, and Sweden.
Why does Europe have high tax rates?
Europe a top welfare mega society:
Europe is mostly developed and only the elite class of the rich people can afford to live there. As a result, those people do not consider it difficult to live there. Europe is a top-of-the-class-heavy welfare society and has a very strong democracy. Moreover, their total system of governance is based on collectivism. Moreover, the people or residents of the country highly dependent on the services provided by the government. They also depend on the various utilities and monopolies that the government provides to the people.
As a result, it is quite expensive for the government to maintain such a high class and luxurious society, so the government imposes heavy taxes on the residents to increase their tax revenue and maintain the welfare society. Moving on, if there is any inefficiency on the hands of the government, tax rates are increased to keep the government running
Non-consumerist nature of Europe:
European countries are non-consumerist, and this isn’t an initiative for any country. This habit is not new to them, but it has been practiced historically by the successors. The country being non-consumerists allows internal consumption of resources inefficient for self-support. It means that the country is dependent on the resources it has or the ones it produces. Due to this reason, most countries are forced to export goods to neighbouring countries so that they can improve their overall GDP.
A study in 2018 showed that Europe exports most of its goods to the United States of America. Exports to America contribute around 25 percent of the GDP of Europe. You might be wondering that this should decrease tax rates in Europe, but that is not the case. Exports are mostly taxed and are also Duty-free, which means that very little or no tax is applied on those goods. As a result, the government does not earn enough profits from exporting those goods, so they have to turn to the people and collect heavy taxes to keep the country running.
Hidden taxes by the government of European countries:
A recent study showed that Germans pay almost 60 percent of their salaries in taxes. salaries are not only consume salaries but also other staff such as social services, health, and pension provision.
The poor are exempted from giving taxes, so the rich have to pay extra taxes for their health. However, people do not agree with their government as there are too many trust issues between the public and the government. The people think that the government is lying to them as they pay much more in taxes to the government. They also said that the government hides labour costs from them.
This is the case with other European countries too as people believe that the gross salary they receive is not the true gross salary that they deserve. The employer deals with the employee health and pension contribution, and such tax cuts are not included in the payslip given to workers. I will explain this using an example. Suppose an employee receives a salary of 100k euros a year as gross salary. He does not pay the tax church and has only two children. So this means that he would receive only 56k euros per year. It is around 54 percent of the total salary. The rest is consumed in taxes. Moreover, the employer also has to pay 26k as compensation for matching socials. Let us do the math. 100k + 26k = 126k.
So the worker has a gross salary of 126k from which he receives the only 56k. this strategy buys the government political gain as they trick people into believing that they receive payment under 40k of their gross salary. It gives the government to extract taxes from other areas and thus impose high tax rates.
The role of VAT:
So what is the VAT? VAT is known as a value-added tax. This VAT comes into the category of consumption taxes, and it is applied to food products after they are released from factories or farms. VAT plays a vital role in taxes paid by the people of Europe. There are several reasons why the governments in Europe exorbitant VAT. One reason is that the governments of Europe are trying to teach and convince their population to limit the consumption of foods.
They are also promoting new initiatives such as advertisements to curb the wastage of food. The rich governments are spending millions of euros to promote this initiative. They are doing this for political reasons such as ecology or religious history. VAT helps the government in doing so, and thus this leads to an increase in value-added taxes.
Another reason for high taxes is that when the government adds costs above your salary deductions, the employees cross over 60 percent if we relate it to labour costs. When we reach such scenarios, we can not relate the United States of America with Europe. As Europe spends a 1/3rd of the total tax collection and the rest is consumed in other services provided to the people. Hence, usually, the government receives a shortage of funds, so they impose more and more taxes.
Several social facilities the lead to high taxes:
Although the European countries are expensive to live in, they provide much more social facilities to their public if compared to other countries. Almost all European countries provide free-of-cost higher education to their citizens. Recently, many European countries have passed legislation to make higher education free for international students too. This step was taken to attract foreigners to Europe. It will not only increase popularity but also increase tax collection.
European countries also provide benefits to elderly people. Every European country must provide its elderly with necessities if they can afford it or not. Such social benefits include pensions and necessities such as food and clothes. If some elderly people have no families or homes to live in, the government provides them with shelter homes. Such shelter homes have staff members that take care of the elderly and provide them with food and clothes. The government is responsible to keep these shelter homes functioning, so thus they impose heavy taxes on the rich people.
Moreover, the European countries also provide special attention to children who are disabled or have no one to take care of them. Such children are provided the necessities that every child shall have. The government provides them with food, clothes, uniform, education, and other facilities. Several such unprivileged children are the responsibility of the state. Such facilities require high tax revenues so that they can function effectively.
Removing unwanted businesses:
Europe was once called the economical hub of the world. The government made the provision of permits and the setting of businesses very easy for the people. As a result, people set up many businesses, but some of that businesses was dislike in those times. In the recent era, those businesses cause more harm than good to the economy of a country. So all the governments of European countries decided to hike taxes. When a country brings a drastic increase in taxes, it bars people from setting up a business, and it is easier for the government to shut down unwanted businesses, which they could have not done otherwise.
Helps in removing debt:
Europe is currently going through an economic crisis due to the lower population; it is facing a lot of trouble to curb this turmoil. Industries shut down due to lower sales of products. And people are slowly moving out of European countries. Moreover, European countries are drowning in debt by the passing day. They borrow more and more money from other countries. Sometimes these countries are unable to give back those debts, and the interest builds up. Thus these European countries have no other way but to impose heavy taxes on their public to gain as much revenue as they can and return their debt.
The European countries are facing extreme population crises and people tend to migrate more from these countries to others. A recent study shows that the rate of people migrating from European countries has increased if compared to later years.
The tourist industry is active and earns Europe a sum of revenue, but that isn’t enough. People do come for tourism, but they do not prefer permanently shifting to European countries. One reason for this is that Europe is close to the North Pole, so it has extreme winters that can become unbearable sometimes.
Due to this reason, the European countries are facing a worldwide crisis as they have no population. So the government has to enforce the public to pay more taxes to compensate for those that have left the country.
Applying taxes on imported goods:
As much as the government pays importance to pay taxes on the local people, it also lays great interest in applying taxes on imported goods. European countries export more of their goods, but their import bill has started to cripple their already unstable economy. Thus the European governments have to take steps to decrease their import bill and comparatively increase their export bill.
So how does the government do this? If the first thing that comes to your mind is taxes, then you are right. Yes, the government imposes extra money on imported items to help decrease their import bill. But how are taxes related to decreasing import bills? When the government imposes heavy taxes on goods, then the public does not buy those imported products as they become too expensive to afford. It helps the government in two ways. Number one, it increases tax revenue due to higher taxes, and number two, the public focuses on buying items that are make the country. It gives a boost to the GDP and thus helps the country in healing its economy.
Top 10 European countries with low taxes:
Andorra: Andorra is the country with the lowest tax rates in the whole of Europe. It is known as the best place for duty-free shopping. Moreover, Andorra also provides permits for residents and starting up a business for the international people. This country is ideal for people who have plans for capital gains and generational wealth. It is because Andorra has no taxes, such as wealth tax or gift tax. It is also easy to start a company in Andorra as you only need a 50k euro bond, a CV, and a business plan.
Bulgaria: Bulgaria has the lowest income tax rates in the whole of Europe, so you receive most of your salary, and you have to give very little to the government. Moreover, Bulgaria has established tax treaties with some countries, which means that it is easier for international entrepreneurs to start a business in Bulgaria. Bulgaria also has a larger square feet area, so it is convenient to buy land there as it is cheaper as compared to other countries.
Czech Republic: this country also has low tax jurisdiction and it is often not included in the list of cheap European countries even though, Czech Republic has streamlined both its corporate and personal income tax at equal levels. Prague is the capital of the country and is famous worldwide for its artefacts and natural beauty. Although Prague is the center of the population for tourists, the cost of living in it is very cheap.
The cheapest countries to live in Europe
Georgia: Although Georgia is not located in the center of Europe, it is famous for its extremely affordable lifestyle. Moreover, Georgia is the only country with a proper territorial tax system. It means that people with income from foreign sources are not taxed in most cases. Georgia is safe, and living in it is also very cheap, and activities like drinking and smoking are also relatively inexpensive.
Gibraltar: Gibraltar is also included in one of the cheapest countries to live in Europe. It provides benefits such as low taxes to international residents. It is also easy to become a resident in this country as you only need to start a company or provide the government with proof of high income.
Malta: Malta has one of the most tax-friendly programs in the whole of Europe and has corporate taxes as low as 5 percent. Moreover, it is not necessary to be physically present in the country to be residents. You can buy a property there and move out of the country. Moreover, residents are also not taxed on bringing foreign income and investment in the country.
Monaco: Although it is a small city, it has efficient tax policies. Only the people who genuinely want to live there are given citizenship. It is compulsory to spend three months per year in Monaco for the first nine-year after which you can receive residency.