While governments around the globe are seen to be using tax policy and rates to stabilise their revenue base due to changes in their economies, less than 15 percent of 96 countries from around the world recorded any change in personal income tax rates, and not even a single G-20 member reported a change to its top personal income tax rate.
According to the latest KPMG International Individual Income Tax and Social Security Rate Survey, last year saw more than twice as many rate changes than this year and four G-20 members reported updates. In 2011, Spain is the only economy (defined by GDP) within the world's top 20 economies surveyed that had a change in top personal income tax rate. Changes mostly in Europe, although there are some significant differences among the sub-regions, the vast majority of rate movement in 2011 comes from the Europe region.
The average rate for Eastern Europe at just over 17 percent is less than half of that of other European sub-regions. This is a result of the historical low flat tax initiatives.
In 2011, the relatively low Eastern Europe rate distinction is emphasised with Hungary slashing their top personal tax rate from 32 to 16 percent and adopting a flat tax rate system. In Southern Europe, where the average rate approaches 39 percent, tax rate increases were seen in Spain and Portugal. Spain created new tax brackets for higher income earners, raising rates at the top end by two percent so that income over 175,000 euros is now subject to a 45 percent rate. Portugal raised rates, albeit at a lesser level, for the second year in a row.
In Northern Europe, where the average rate approaches 40 percent, minor tax rate changes are seen in Latvia, Finland, Sweden, Iceland and Ireland. Latvia dropped its flat tax rate by 1 percent. Variances on the municipal front resulted in small combined rate changes in Finland, Sweden and Iceland. Ireland, which initiated the upward rate movement trend back in 2009, increased rates for the third consecutive year (a one percent increase in 2011) as it continues to seek additional tax revenues. Little activity elsewhere Within the Asia region and its diverse sub-regions, the only tax rate rate change is seen in Jordan which implemented an 11 percent decrease in rates.
For the Asia region the average rate remains at just over 23 percent. The economic powers of China, India and to a lesser extent South Korea showed no change in income tax rates. The personal tax rate competition between Hong Kong and Singapore remains but to date there has been no change in fundamental state of play.
Ashok Hariharan, Partner and Head of Tax for Lower Gulf noted that the Gulf Co-operation Council (GCC) comprising Oman, United Arab Emirates, Qatar, Saudi Arabia, Bahrain and Kuwait continue to exclude personal income from tax other than those taxable as business income.
KPMG International's broader analysis comparing both effective income tax and social security rates on $100,000 and $300,000 of gross income emphasises the important point that other taxes and the impact of deductions clearly need to be considered.
© Muscat Media Group