Ireland is the third least taxed country in the EU behind Lithuania and Latvia with social contributions markedly less than the EU average, according to research released today by the EU Commission.
Ireland has a total taxes-to-GDP ratio of 30.2 per cent, the third lowest in the EU where the average is 37.6 per cent and the lowest among the non-accession countries. Sweden is the most heavily taxed with tax to GDP ratio of 50.5 per cent.
The composition of tax revenue in Ireland (indirect 44 per cent, direct 41 per cent, social security contributions 15 per cent) differs considerably from the typical structure for the EU-25 as a whole (38 per cent, 32 per cent, 30 per cent).
"The greater significance of indirect taxes in the total tax take counterbalances the generally light overall tax burden in Ireland such that the proportions of GDP absorbed are comparable," the Commission states in its report.
The report finds that only Britain and Malta have similar tax structures. Ireland is also an outlier in terms of social security contributions. Social security contributions such as PRSI absorb a mere 4.6 per cent of Irish GDP compared to an EU-25 average of 11.3 per cent.
Only in Denmark, Ireland and the United Kingdom do personal income taxes form a relatively large part of the total charges paid on labour, the report finds. In most other EU states the level of income tax and social contributions are similar.
Since 1995 Ireland has reduced the total tax burden across the board when the tax burden stood at 33.1 per cent of GDP.
However in the last two years, the total tax ratio has bounced back over the level of 2001 in large part due to a surge in capital gains tax and stamp duties.
Within indirect taxes, excise duties fell substantially as a proportion of GDP over the period (from 4.9 per cent to 3.4 per cent) primarily because revenues, while doubling in monetary terms over the period, failed to keep pace with the growth in the general economy.