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Tax policy shielding households and businesses from decade-high inflation

Tax policy has played a central role as governments sought to shield households and businesses from the impact of decade-high inflation levels, according to a new OECD report.

The report, “Tax Policy Reforms 2023”, describes tax reforms announced and enacted in 2022 across 75 jurisdictions of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, including all OECD countries. It provides an overview of the macroeconomic environment and tax revenue context in which these tax reforms were made, highlighting how governments deployed tax policy to respond to historically high levels of inflation and address long-run structural challenges.

The report finds that tax reforms — including those directed towards lowering the tax burden on low-income earners and reducing taxes on energy products — have been one of the key policy tools that governments used to protect households and businesses from decade-high inflation levels.

As energy and food prices rose steeply during 2022, countries moved quickly to support households and businesses by providing temporary fiscal support — including cuts to value added taxes and excise duties — and by adjusting tax brackets, allowances and credits within personal income tax and social security contribution regimes.

The press release notes that “To encourage investment, governments continued expanding corporate income tax incentives and adapting tax regimes to the challenges and opportunities posed by the digitalisation of the global economy. Many jurisdictions also took steps towards implementing the global minimum tax as part of the Two-Pillar Solution to reform the international tax framework. Many also enacted VAT reforms to achieve more effective taxation of cross-border digital trade.”

Source: Countries deploy tax policy to shield households and businesses from decade-high inflation