Globally, personal income tax rate discussions remain high on the agenda in 2011 but rate movements for the most part have yet to occur. The average rate actually went down by 0.3 percent in 2011—particularly in the larger economies, according to a report has just released by KPMG.

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While the average tax rate was climbing by 0.4 percent since 2010, across 96 countries, the trend didn’t go up in 2011.

Drawing on KPMG’s global network of professionals from KPMG member firms around the world, its international executive services (IES) has compiled KPMG International’s Individual Income Tax and Social Security Rate Survey for 2011. And the report shows that “less than 15 percent of the countries surveyed had any change at all and not a single G-20 member reported a change to its top personal income tax rate.” Read on…

The report also notes that Spain was the only country within the world’s top 20 economies (as defined by gross domestic product) that changed its top personal income tax rate in 2011, with a 2 percent rise for top earners.  In contrast, KPMG’s report in 2010 revealed nearly twice as many rate changes—21 overall, including changes in four G-20 countries—versus this year’s 2011. The report reads:

“Luxembourg is the only country in Western Europe which had a rate change in 2011. Under pressure to reduce its budgetary deficit, Luxembourg responded by increasing the top personal income tax rate, raising the unemployment surcharge for high income earners and introducing a crisis contribution tax. When combined, these measures have effectively increased the top personal tax rates by approximately 3 percent.”

 

2011 Personal Income Tax Movement in Europe

The vast majority of rate movement in 2011 comes from the Europe region, according to KPMG’s report. The average rate for Eastern Europe at just over 17 percent is less than half of that of other European sub-regions.

The relatively low Eastern Europe rate distinction is emphasized with Hungary slashing their top personal tax rate from 32 to 16 percent and adopting a flat tax rate system. Ukraine rates however forced it to increase its flat rate from 15 to 17 percent. In Southern Europe, Spain created new tax brackets for higher income earners, raising rates at the top end by 2 percent such that income over EUR175,000 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. Ireland, which initiated the upward rate movement trend back in 2009, raised rates for the third consecutive year (a 1 percent increase in 2011) as it continues to seek additional tax revenues.

Western Europe, where the average rate is over 45 percent, continues to have the highest personal tax rates of any sub-region globally.

2011 Average Personal Income Tax  Rate – Europe

1–10%: Bulgaria

11–20%: Czech Republic, Guernsey, Hungary, Isle of Man, Jersey, Romania, Russia, Serbia, Slovakia and Ukraine

21–30%: Latvia

31–40%: Croatia, Gibraltar, Malta, Poland, Switzerland

41–50%: Austria, Belgium, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain and United Kingdom

51%+: Denmark, Netherlands and Sweden

 

However, the report notes that Luxembourg is not the only country to implement a temporary levy. Australia will do the same in their coming 2011/12 tax year implementing what it calls a ‘Temporary Flood Reconstruction Levy’. There is also speculation that Japan may introduce a similar temporary tax to help fund their post-earthquake rebuild.

 

2011 Personal Income Tax Movement in Asia

Within Asia, the only 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 lesser extent South Korea showed no change in 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.

2011 Average Personal Income Tax  Rate – Asia

No personal income tax: Bahrain, Kuwait, Oman, Qatar and United Arab Emirates

1-10%: Kazakhstan

11-20%: Afghanistan, Armenia, Georgia, Hong Kong, Jordan, Macau and Singapore

21-30%: Bangladesh, Cyprus, India, Indonesia and Malaysia

31-40%: Korea (South), Philippines, Taiwan, Thailand, Turkey and Vietnam

41-50%: China, Israel and Japan

 

2011 Personal Income Tax Movement in South-America

For the Latin America region, where the average rate remains at just over 28 percent, the only rate change is seen in Jamaica which reverted back to 2009 levels after a temporary 10 percent increase.

2011 Average Personal Income Tax  Rate – South America

No personal income tax: Bahamas and Cayman Islands

11-20%: Costa Rica

21-30%: Brazil, Honduras, Jamaica, Mexico, Panama, Peru and Uruguay

31-40%: Argentina, Colombia, Ecuador, Guatemala and Venezuela

41-50%: Netherlands Antilles

51%+: Aruba

 

2011 Personal Income Tax Movement in Africa

In the regions of Africa (average rate of 27 percent), highest rates of personal income tax remained static in 2011.

2011 Average Personal Income Tax  Rate – Africa

11-20%: Angola, Egypt, Mauritius and Sudan

21-30%: Botswana, Malawi and Tanzania

31-40%: Mozambique, South Africa, Tunisia and Zimbabwe

 

2011 Personal Income Tax Movement in North America

The most significant case where this inert position was challenged came out of the United States. Top US federal rates were set to return to 39.6 percent (pre-Bush tax cuts levels) at the beginning of 2011 but a December 2010 bill was passed keeping the top federal rate unchanged at 35 percent, (at least until January 2013).

2011 Average Personal Income Tax  Rate – North America

No personal income tax: Bermuda

31-40%: United States

41-50%: Canada

 

Countries With Highest Top-Level Personal Income Tax Rate

One of the most highlighted items in the report is countries with highest on top level. In terms of the highest income tax rates in the world, the small Caribbean island of Aruba (a new participant in the survey) took this accolade with a rate of 59 percent.

Other countries with top personal income tax rates at 50 percent level or higher included perennial countries like Sweden (57 percent rate), Denmark (55 percent rate), Netherlands (52 percent rate), Austria (50 percent level), Belgium (50 percent rate) and United Kingdom (50 percent level).

The UK increase to the 50 percent rate level occurred last year and the change remained a headline item in 2011. The only country with a 50 percent rate or higher level outside of Europe is Japan.

However, the report notes that a country’s highest personal income tax rate is only one indicator of what taxes individuals may pay on their income. Just as influential are which other taxes may apply and on which income thresholds those rates are charged. Largest thresholds rest with the larger economies. The United States, Germany (although a 42 percent rate kicks in at relatively lower income level), Singapore, Japan and the UK all wait until after an individual has more that USD200,000 of taxable income before imposing the top rate.

 

Effective Income Tax Rate and Social Security Rate Movements

KPMG’s researchers also do broader analysis by comparing both effective income tax and social security rates on USD100,000 and USD300,000 of gross income, which they believe further emphasizes the point that other taxes and the impact of deductions clearly need to be considered.

The result of the analysis shows France has the highest combined rate at over 50 percent under either scenario. Belgium is the next highest at 48 percent. While these rates may seem exceptionally high, over onethird of the countries within this review had social security-based effective tax rates of above 20 percent on USD100,000 of gross income. Although European countries dominate the list, countries like Argentina, Brazil and India also feature.

While social security systems differ greatly across the globe and many systems provide access to social security based on years of service rather than age, almost a quarter of the countries surveyed by KPMG which noted a retirement age as part of their system have increased that age within the last 5 years or plan to do so within the next 5 years.

Meanwhile, it seems that most economies continue to struggle for growth and the stock recovery of 2010 has not continued at the same pace in 2011 (with signs of potential retraction). (Source: KPMG International)