OECD Report Finds CIT Rate Cuts Slowing, Revenue Disparities Persist Across Countries

Corporate income tax (CIT) rate reductions are slowing, with wide disparities in revenue shares from the tax continuing to mark differences across jurisdictions, according to a new OECD report released today, September 11, 2024.

The report, Tax Policy Reforms 2025 – OECD and Selected Partner Economies, was produced by the tax policy and statistics division of the OECD’s Centre for Tax Policy and Administration. Published annually, it offers comparative information on tax reforms across countries, with this year’s edition reviewing reforms introduced or announced during 2024 across 86 jurisdictions.

CIT rate reductions “showed further signs of halting in 2024,” the OECD noted. “For the second consecutive year, CIT rate increases were more common than decreases, further suggesting that the downward trend in CIT rates has halted or is showing signs of reversing,” the report stated. Revenue mobilisation, along with efforts to stimulate growth and investment, was highlighted as a key driver of CIT reform during the year.

The report stressed that significant disparities in CIT revenue shares persist across income groups. In low-income countries, the average CIT share rose from around 13.2% in 2000 to over 22% in 2022. Middle-income countries experienced a similar climb, with shares increasing from 11.3% to nearly 20% in the same period. High-income countries saw a more modest rise, with shares increasing from 11.2% in 2000 to 13.3% in 2022. Nevertheless, this represents a clear uptick compared to 2019 levels, the report added.

Several factors account for these disparities, according to the OECD, including variations in statutory CIT rates, the breadth of the CIT base, the prevalence of corporate entities in different jurisdictions, and the extent to which countries rely on alternative forms of taxation.

Despite a trend toward increasing CIT rates, the report underscored that CIT base narrowing measures remain widespread. Countries “continued to adopt base narrowing measures to provide preferential tax treatment for certain types of investment,” the OECD explained. These measures were particularly concentrated in areas such as research and development, emission-reducing technologies, and sectors considered important for national security.

The OECD also pointed to developments in consumption taxation. While many countries enacted VAT reductions during the pandemic and amid subsequent energy price pressures, 2023 marked a clear turning point. Both 2023 and 2024 saw VAT-increasing reforms.

The report noted: “In 2022 and 2023, many countries temporarily reduced fuel excise taxes in response to surging energy prices and broader inflationary pressures. In 2024, however, the rollback of temporary fuel and energy tax reductions, along with the introduction of fuel and carbon tax increases, marked a clear change in direction.”

By fLEXI tEAM