The tax burden on employment rose to 41.8% last year, with Portugal ranked 10th in the Organization for Economic Co-operation and Development with the amount of taxes and social contributions paid being the most important in total labor costs, according to a report by the international organization released this Tuesday, May 24.
According to the Organization for Economic Co-operation and Development (OECD), in Portugal, the tax burden on labor, which measures the weight of internal income tax and social contributions paid by workers and employers (minus social benefits) in labor costs (total income and contributions paid by employers), higher than the average of the 38 member states, which was 34.6%.
In the OECD, the highest employment tax wedge, or “tax wedge” in English, was recorded in Belgium (52.6%) and the lowest in Colombia (0%).
The tax burden on employment grew by 0.3 percentage points compared to 2021, as the IRS began to increase more than in 2020. But the rise is not limited to the OECD. This was a trend in two-thirds of member countries last year, eliminating the declines that occurred in 2020. With the COVID-19 pandemic, the tax burden on employment has fallen sharply in OECD countries. However, with the economic recovery, the weight of taxes and social contributions in labor costs (gross income and TSU) has decreased in most economies.
But the “tax wedge” actually rose in 2020, which has not happened in other countries. Although the OECD does not explain what is motivating these increases, several pandemic tax relief measures have been introduced, on a temporary basis, such as reducing social contributions paid by employers.
In a 20-year trend, the tax burden on work rose by 4.5 points in Portugal, from 37.3% to 41.8% between 2000 and 2021. The trend in the OECD average was the opposite: in the same period the average “Tax wedge” increased by 1.6 percentage points, from 36.2% to 34.6%.
Between 2009 and 2021, the tax burden on work for a single worker increased by 5.3 percentage points in Portugal. In this period, the “tax wedge” in the OECD slowly rose to 35.3% in 2013 and 2014 before declining to 34.6% in 2021.
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