Top personal income tax rates around the world have fallen by an average
of 2.5% in the past six years, as governments strive to balance their need for
revenue with the impact of increasing global labor mobility, a new study from
KPMG International has found.
Worldwide, top personal tax rates have fallen from an average of 31.3% in 2003
to 28.8% in 2008. But European Union (EU) taxpayers still pay the highest rates,
at an average of 36.4%, followed by taxpayers in the Asia Pacific countries
with an average of 34.6% and those of Latin America at 26.9%, KPMG said.
At a country level, the highest tax rates in the world are paid by the people
of Denmark, with a top rate of 59% for the whole six years, followed by those
of Sweden, whose rate came down last year from 57% to 55%, and those of the
Netherlands, who have paid 52% for the whole period.
Excluding those countries which levy no tax at all, the lowest EU rate is in
Bulgaria, with a newly introduced flat rate of 10%, down from 24%. In Asia Pacific
the lowest is in Hong Kong, with 16% and in Latin America it is in Paraguay
with 10%.
Of the 87 countries surveyed, 33 have cut their rates in the past six years
and only seven have a higher top rate in 2008 than they did in 2003.
Among the large western European economies, France has made the most significant
cut in its rates, from 48.1% in 2003 to 40% in 2007. Germany has gone from 48.5%
to 45%, having briefly stood at 42% in 2005 and 2006.
But across the EU it has been the introduction of flat rate taxes in the Eastern
European states that has had the most impact, KPMG said. As well as Bulgaria’s
new flat rate of 10%: Estonia has cut its rates from 26% in 2003 to a flat
21% in 2008; Slovakia has gone from 38% to a flat 19%; Lithuania last year fell
6 points to 27% and this year a further 3 points to a flat 24%; Romania has
cut rates from 40% to a flat 16%; and the Czech Republic, this year, introduced
a flat rate tax set at 15%.
In the Asia Pacific region, tax competition between Hong Kong and Singapore
has led Singapore to cut its rate from 22% for 2003 to 21% in 2006 and 20%
in 2007.
However, both the Hong Kong and Singapore governments offer their citizens
tax rebates when public finances allow. For 2007/08, these rebates were 20%
in Singapore, capped at SGD2,000 (USD1,400) and 75% in Hong Kong, capped at
HKD25,000 (USD3,200).
“Australia also cut its personal tax rate by two points to 45% last
year,” said Rosheen Garnon, head of KPMG’s International Executive
Services practice and a partner in the Australian firm, “but if the intention
was to attract back high value Australian workers who have temporarily moved
to Hong Kong or Singapore, it may not be enough."
"It is common to hear from foreign workers that once families have become
accustomed to the huge increase in spending and saving power that low tax rates
provide, it can be very difficult to justify going home," Garnon added.
In Latin America, personal tax rates have generally stayed low but stable.
There is an increase in the average, from 25.6% in 2003 to 26.9% in 2008, but
this is entirely due to the introduction of a 10% income tax in Paraguay and
a 25% tax in Uruguay, both effective from 2007.
Elsewhere in the region, tax movements have all been down, the survey found.
Mexico and Panama stand out for their steady, year-on-year reductions. In the
past six years, Panama has gone in stages from 33% to 22%, while Mexico has
gone from 34% to 28%.
“Given that the share of national wealth taken by tax revenue in many
countries is static, or has increased in the past five years, the fall in personal
and corporate tax rates raises the question of how governments are now raising
funds,” observed Garnon.
“We think the answer may lie in increases in indirect taxation, through
value added taxes, goods and services taxes, customs duties and fees for specific
services," she added.
“We do not foresee a time when personal income taxes will fall so far
that they become irrelevant to people moving from country to country. But it
is entirely possible that the relative level of indirect taxes will begin to
play a much greater part in people’s decisions on where in the world to
go for work," Garnon concluded.
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