UK faces tax burden 76% higher than major emerging economies

Publications that covered this story include City AM on 19 March.
  • A lower burden of tax could help increase UK attractiveness post-Brexit
  • UK could be inhibiting growth with higher relative tax takes compared to faster growing emerging markets

The UK has a tax burden of 38% of Gross Domestic Product (GDP), 76% higher than the average rate for the major emerging BRIC (Brazil, Russia, India and China) economies (21.8%), our research shows.

The UK Government’s tax take is also 36% higher than the global average (28.2%) in the study and was ranked 7th in the study.

We studied 35 countries around the world, calculating what percentage of that country’s GDP is taken by the government in tax (see chart below).

Generally, European economies dominated the top of the table of the highest taxes. European countries, on average, have a tax burden of 43.3%: over 50% higher than the global average (28.2%) in the study. Denmark came top of the study with the government’s tax take representing 53.5% of total GDP.

The G7 average of 31.1% is closer to the global average with the USA (22%) and Japan (34.4%) seeing lower tax takes than their European competitors. The US percentage could fall further in the coming years as some commentators claim that the US President Donald Trump’s recent tax plan could see US Government tax revenues fall by as much as USD$2 trillion.

Emerging economies in general have seen much lower levels of government tax ‘take’, including many in the ASEAN (Association of Southeast Asian Nations) trading bloc such as Malaysia (16.5%) and the Philippines (13.9%).

Darren Grimes, tax partner in our Manchester office, says: “Lowering the high burden of taxation could act as a competitive differentiator for the UK post-Brexit.”

“A lower tax burden could increase the UK’s attractiveness to foreign-based businesses on the global stage compared to other developed nations.”

“Recent reductions in corporation tax have helped, but policymakers need to resist the temptation to backtrack on this as we look ahead. Securing favourable customs tariffs is also clearly top of the list of priorities as Brexit approaches.”

“However, the UK may need to think even more creatively if it is to make a real difference.”

“For more developed economies it can often be harder to balance an ageing population with trying to reduce the tax rate, but the Government will need to try and find a way. Other countries’ initiatives could provide food for thought.”

Many European countries, including Germany and Portugal, with higher than average tax take are already looking at ways to reduce the burden. For example, the German government (43.8% of GDP) has the goal of relieving the tax burden on SMEs to incentivise innovation, including:

  • Implementing tax support in research and development for companies with fewer than 1,000 employees
  • Establishing a ‘high-tech founder fund’ with a target volume of €300 million
  • Starting a new digitisation campaign for medium-sized companies

Darren adds: “Developed economies like the UK need to investigate ways of lowering the tax burden for businesses or they may find increasing competition from more dynamic emerging countries.”

“Lower personal and business taxes can help economies spur growth and create incentives, particularly for investors and larger, more globally-focused businesses.”

Levels of tax take by national Governments are of growing interest, particularly for the EU at the moment with Brexit on the horizon, to secure Government funding in the short term and encourage growth in the long-term.

The Republic of Ireland is the only Eurozone country studied where Government tax take is below the global average.

Recently, the European Commission suggested that EU countries may have to consider changing tax policies to help fill the €15 billion annual budget hole left by the UK’s Brexit. These could include proposals such as using a portion of corporate tax receipts from national treasuries for the EU’s common funds and programmes.

UK sees a tax burden 76% higher than the rate of major emerging markets

Rank Country Tax as a %
of GDP (2017)
1 Denmark 53.5%
2 France 51.9%
3 Italy 46.1%
4 Portugal 43.9%
5 Germany 43.8%
Europe 43.3%
6 Netherlands 41.8%
7 UK 38.3%
8 Canada 38.0%
9 Spain 37.6%
10 New Zealand 36.4%
11 Malta 35.8%
12 Brazil 34.9%
13 Japan 34.4%
14 Australia 33.2%
15 Poland 32.0%
G7 31.1%
16 Uruguay 29.4%
17 Romania 28.5%
World 28.2%
18 Israel 26.7%
19 Ireland 26.2%
20 Mexico 25.7%
21 Vietnam 22.9%
22 China 22.4%
23= UAE 22.0%
23= USA 22.0%
BRIC 21.8%
25 Argentina 19.9%
26 Zambia 19.1%
27 Russia 17.3%
28 Malaysia 16.5%
29 Pakistan 16.4%
30 Philippines 13.9%
31 Guatemala 11.8%
32 Bangladesh 10.8%
33 India 10.2%
34 Nigeria 4.7%

*Data based on an analysis of CIA World Factbook and International Monetary Fund data