Looking at the countries with the lowest tax rate we can see many countries that derive their riches from oil supplies and thus can afford to have a low income tax rate and a low VAT rate. But there is one exception - Switzerland. A very advanced country with no oil reserves and a very rugged terrain. How is it possible for them to have such a low tax rate?
I am aware of their (in)famous banking system that bring in a lot of money but is that the only reason?
Comparing taxation across nations is not trivial, because different nations use different means of taxation; just because the VAT is low doesn't mean that the overall tax burden is.
Since you asked about taxes in general, let's look at the OECD statistics for "Total Tax Revenue as % of GDP". Their summary report about Switzerland writes:
Switzerland ranked 30th out of 37 OECD countries in terms of the tax-to-GDP ratio in 2019. In 2019, Switzerland had a tax-to-GDP ratio of 28.5% compared with the OECD average of 33.8%.
However, Switzerland has a somewhat unusual tax structure. Here are the various tax categories (OECD Stats: tax revenue as % of GDP, 2018):
| Category | Switzerland | OECD Average |
|---|---|---|
| Total Tax Revenue | 28.05 | 33.88 |
| 1000 Taxes on income, profits and capital gains | 13.37 | 11.52 |
| 1100 ... of individuals | 8.60 | 8.14 |
| 1200 ... of corporates | 3.2 | 3.14 |
| 1300 ... unallocable between 1100 and 1200 | 1.57 | 0.24 |
| 2000 Social security contributions (SSC) | 6.63 | 9.00 |
| 3000 Taxes on payroll and workforce | 0 | 0.42 |
| 4000 Taxes on property | 2.05 | 1.86 |
| 5000 Taxes on goods and services | 5.84 | 10.94 |
| 6000 Taxes other than 1000, 2000, 3000, 4000 and 5000 | 0.15 | 0.15 |
As you can see, taxes on income, profits and capital gains are significantly above the OECD average, but most of that difference is the "unallocable taxes" category (specifically, the Withholding Tax and the Property Gains Tax, which the Wikipedia table does not take into account).
However, social security contributions are a lot lower than average. This is caused by the Swiss hybrid pension scheme, which consists of 3 pillars. The first pillar is mandatory, executed by the state, and therefore considered a tax. The second pillar is also mandatory, but executed by independent fund managers. Since the money is paid to private entities rather than the state, this is not considered a tax by OECD. This second pillar amounts to about 6% GDP. If it were counted, social security contributions would be about 13%, well above the OECD average of 9%. The 3rd pillar is voluntary, and thus not considered a tax either. However, since it replaces the 2nd pillar for the self employed (who can't use the 2nd pillar), one might argue that it should be counted, too.
Something similar happens with health insurance: In Switzerland, health insurance is mandatory, but everyone chooses their insurance company. Since the health insurance premiums are paid to a private company rather than the state, the OECD does not consider them a tax. In contrast, in some European countries health insurance is fully tax funded. (and yes, health insurance premiums matter; in Switzerland they amount to 7.8% of GDP).
That is, mandatory social security payments worth 14% of GDP are not considered taxes by OECD because Switzerland chose to have part of their social security systems executed by private entities regulated and supervised by the state, rather than executed by the state directly.
If these mandatory social security contributions were counted, Switzerland's total tax revenue would be about 42% GDP - well above the OECD average of 34%, and comparable to Scandinavian countries such as Norway (39.9%), or Sweden (42.9%) known for their good (and fully state funded) social security institutions.
This shows why comparing taxes in isolation is meaningless. Taxes measure how much money flows to the state. They do not measure what that money does, or how much money flows back. Does it really make a difference whether health insurance premiums are paid to the state, or to a private company? I have to pay either way.
In summary, the Swiss do pay low VAT. They also pay above average income taxes. And they pay hefty mandatory pension fund and health insurance premiums on top.
The Swiss tax wonder is a myth.
PS: Banking contributes only 5% of the Swiss GDP. So much for the infamous reputation ;-)
In the end, Switzerland is a very rich country and Swiss francs are fanatically strong as a currency. Even a lower rate can bring in more "purchasing power" (abusing the term here) for the government. This is a complex question with many factors that I can't address (but you definitely can find a lot of articles and potential explanations elsewhere on "why Switzerland is so rich"), at least not under this question.
But in relation to taxation in particular:
If you are asking why VAT or a particular type of tax is low, this is an internal political decision.
In Switzerland's case, VAT is only levied by the Confederation (federal government). The Federal Constitution authorizes the Confederation to levy certain taxes only (including VAT) and prohibits the cantons or their communes from levy a VAT or taxes similar to a VAT.
The Confederation represents only a part of public administration in the Swiss federal system (in terms of government revenue: 67bn for the Confederation, 75bn combined for cantons and communes). If cantons were to replace a similar proportion of revenue with a VAT, the combined rate would be similar to other European countries, albeit probably still lower.
The Confederation and cantons also levy corporate and individual income taxes. In addition, all cantons impose a wealth tax on an individual's net worth. This does not represent a big part of the revenue for the cantons, but still significant.
The taxation rates vary wildly from canton to canton or even commune (village/town/city) to commune. A single person earning 80k francs per year would pay ~12k in income taxes (of course, a rough estimation taking into account average deductions) in Lausanne, but only ~4k francs in Zoug.
With the subsidiary principle, the decisions are taken locally and I cannot explain every canton's decision on their taxation structure and budget spendings. Some explanations and comparisons can be found here (in French). But in general the same reason applies, rich countries or cantons can afford a lower taxation rate to provide a similar level of service to poorer countries or cantons. This effect is more pronounced at the cantonal level because the cost of labour etc. is similar within a country (than within the world).
Last but not the least, often, mandatory (private) health insurance premiums are not counted as tax for Switzerland, sometimes neither are the mandatory (private) retirement fund for most employed persons.
But in general, Switzerland still spends less. In terms of total taxation and expenditure as a ratio to GDP, Switzerland's tax revenue represents ~28% of GDP and the government expenditure represents 34% of the GDP (46% and 56% resp. for France, 37% and 44% resp. for Germany).
For social welfare in particular, Switzerland spends far less (less than 20% GDP).
As these values measure against the GDP, the first paragraph of the answer also applies.
Switzerland also has an individualist reputation and this also plays into politics and deciding the role of government in the society (for better or worse).
Because you look in the wrong direction.
Personal income taxes are rarely relevant for the state, there's more populism (and preventing middle class from having savings).
Yes, Switzerland has a low income and VAT tax, and low corporate taxes but...
The average income is high. So even 'low' percent tax produces big number.
There are a lot of companies having their headquarters in Switzerland. And a lot of postbox companies. They pay relatively low tax, but they all pay that tax in Switzerland, even if in most cases they produce most of their income outside of Switzerland (it's effectively a tax drainage).
And last but not least: Switzerland is one of the few countries that have total ownership tax. If you're a Swiss resident, your whole ownership is taxed, not only properties, but cars, ships, bank accounts, shares and funds, arts etc. This tax might look low (0.2%-0.5%), but it's calculated from your total ownership value each year. And there are people who are really rich!
The real answer is, that in the countries like Germany or Sweden, the populist politics let you see only the tip of the iceberg, tax middle class like wild, and let rich pay almost no taxes, while Switzerland allows middle class pay little taxes, and ask the rich for the checkout.
Tax is not particularly low there. It's that simple.
https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio
It's completely identical to many other countries such as Australia, USA, Korea, Argentina.
(The link given in the OP is utterly useless. The link given here is better but still useless.)
