In the OECD classification, “taxes” are confined to compulsory, unrequited payments to general government. They are divided into five broad categories: taxes on income, profits and capital gains; social security contributions; taxes on payroll and workforce; property taxes; and taxes on goods and services, i.e. consumption taxes (see OECD, Revenue Statistics 1965-2006).

Value added tax (VAT), which is also called Goods and Services Tax (GST) in some countries, has, for many years, demonstrated its capacity to raise tax revenue in a neutral and transparent manner. More than 140 countries (Annex 2), including major non-OECD economies such as China, India and Russia, have adopted this method of taxation and it is now the most widespread general tax on consumption. Since 2000, following the introduction of GST in Australia, 29 of the 30 OECD member countries have a VAT system in place, while the United States continues to deploy retail sales taxes at the state level (and below), rather than apply a federal consumption tax.

Although most countries have adopted the general consumption tax system called Value Added Tax (VAT or in several countries Goods and Services Tax – GST), there are many differences in the way it is implemented, including between EU Member States whose VAT laws share the same legislative root. These differences may be divided into two categories: differences that have a decisive impact on international trade and those that mainly impact local tax management.

Before the introduction of general consumption taxes, excise and customs duties were the priory mean of taxing consumption. Unlike customs duties, however, excise duties are normally levied on consumption of specific goods whether domestically produced or imported. As with the value added taxes (VAT), excise duties share the principle of neutrality towards goods produced abroad.

Motoring has been an important source of tax revenue for a long time. All member countries rely heavily on a range of tax instruments to ensure significant budgetary receipts from both private and commercial road users. Vehicle taxation in its widest definition represents a prime example of the use of the whole spectrum of consumption taxes. Over the last fifteen years, these taxes have been adapted to influence consumer behaviour, mainly to achieve environmental objectives.

The expansion of value added taxes to more than 140 countries (see Chapter 2) is one of the major developments in the consumption taxes area over the last twenty years. Whilst the statistical part of this publication is limited to OECD member countries it is useful to provide an overview of the VAT systems being developed in three major non- OECD economies i.e. China, Russia and India.