The European Commission has presented its Annual Report on Taxation (ART), offering a detailed overview of taxation policies in all EU countries. This report assesses recent trends in EU tax systems and identifies ways to enhance compliance.
The report reveals that the EU’s overall tax-to-GDP ratio rebounded to 39.4 % in 2024, a slight increase from the decade-low dip of 2023. The rise was recorded in 22 Member States, driven largely by a stronger reliance on labour taxes – including social contributions. They accounted for 51.5 % of total tax revenue, while consumption taxes covered 26.8 % and capital taxes 21.6 %.
The role of tax design
In addition to generating government revenue, taxation plays an important role in steering the economic behaviour of workers and businesses. In particular, tax systems can help support policy objectives, address market failures and promote economic activity. Across the EU labour market, taxes and social contributions contribute to shaping work incentives. Targeted tax tools can also help encourage businesses to invest in key areas. In this context, well-design tax incentives can support the uptake of low-carbon technologies, as accelerating decarbonisation remains a central EU policy objective.
Structural trends
Over the past decade, the tax mix has gradually shifted away from consumption-based levies toward capital-based ones. Labour taxes remain fundamental, although the degree of labour-tax reliance varies across Member States and trends are diverging. While countries pursuing fiscal consolidation trend to increase their reliance on labour taxation, others have gone on the opposite direction. At the same time, corporate income tax (CIT) and value-added tax (VAT) have benefited from favourable trends, whereas environmental and property taxes have fallen.
Towards a simpler, more efficient and growth-friendly tax system
The Commission and national administrations are working to simplify tax rules, boost competitiveness, and stimulate growth. Through the Technical Support Instrument (TSI), the Commission has helped modernise tax administrations – 22 % of TSI projects focus on improving tax compliance and another 21 % on digitalisation of revenue administration. The European Recovery and Resilience Facility has also promoted a series of important tax reforms across the block.
Drivers of (non-)compliance
The report also offers insight into the reasons why taxpayers might decide to comply, or not to comply with tax rules. Tax compliance behaviour is shaped not only by the tax system but also by tax administration and their compliance enforcement capacity, public trust and socioeconomic factors. The capacity of tax administrations to enforce compliance is vital but can never fully compensate for low tax morale or lack of public trust in government. Tax-gap indicators, which compare expected and actual collections, remain essential for monitoring the effectiveness of national tax systems.
Background
The ART underscores that tax policy remains central to the EU economic and political agenda. Building tax systems that are competitive, fair, simple and resilient is essential to support public finances, foster investment, strengthen trust and deliver on the EU strategic priorities. Well-designed tax systems can also strengthen competitiveness and contribute to a fairer and more sustainable society. At a time when Europe needs to channel resources into new strategic priorities, such as competitiveness and security, the report can serve as a tool that helps identify tax gaps. Well-designed tax systems can stimulate growth and boost innovation and investment. A sound tax framework can contribute to the EU’s prosperity and resilience.
