Tax Competitiveness is a key indicator of the health of an economy. It measures the taxation system, including both direct and indirect taxes. A good tax system not only helps governments collect enough revenue to cover their budgets, it also boosts a country’s global tax competitiveness. Governments must continually review and update their tax policies to remain competitive. For instance, a recent agreement in 137 countries to introduce a global minimum tax rate of 15 percent on large multinational companies beginning in 2023 has the potential to raise $150 billion more in global tax revenues every year. In the meantime, the United States is experiencing an economy with a low unemployment rate of 3.7%.
Tax Competitiveness is measured by how attractive a country’s tax code is to businesses and people. A competitive tax code is easy to comply with and can promote economic development and raise funds to fund government priorities. It also ensures that marginal tax rates remain low, which is crucial for global businesses. Tax Competitiveness can be a key element in attracting foreign investment, especially in this day and age, when companies are free to invest anywhere.
The US improved in ranking compared to other countries, reflecting the transition towards a territorial tax regime. In addition to high income tax rates, the US also has a high property tax burden. Furthermore, the survey authors argue that high marginal rates influence employee behavior by distorting economic decisions. This is why tax competitiveness is a key indicator of economic health.
Tax competitiveness measures include a country’s corporate tax rate and VAT rate. While the UK’s top personal income tax rate is 38 percent, it is well above the OECD average of 22.9 percent. Another key factor is the size of the tax treaty network. Countries with wide tax treaty networks are more likely to have lower rates.
The OECD also ranks countries based on their tax competitiveness. Low scores suggest a less competitive tax system, while high scores mean the opposite. In addition to tax competitiveness, the OECD has a report identifying the strengths and weaknesses of tax laws in OECD countries. If you want to make the best tax decisions for your business, consider investing in the country that offers the best tax conditions.
Tax competitiveness is an important factor when it comes to attracting foreign investments. It should be kept in perspective, however, as tax rates are only one factor in a country’s competitiveness. For example, the United States has the largest market in the world and a highly educated and dynamic workforce. In addition to competitive taxes, the United States also has the advantage of a strong rule of law and infrastructure.
In addition to making tax competitiveness better, the United States is aiming to eliminate the tax havens that allow multinational corporations to benefit from low-tax countries. This will prevent the offshoring of manufacturing jobs to low-tax countries. By doing so, US multinationals will be able to compete in a more level playing field with their foreign competitors.