With the exception of Spain, Luxembourg, Ireland, and a few other countries, most nations did not increase their top personal income tax rate this past year despite revenue pressures, according to a new report from KPMG.

The firm found that only 11 percent of the 96 countries it studied for its most recent KPMG International Individual Income Tax and Social Security Rate Report changed in top personal income tax rates. In addition, not a single G-20 country reported a change to its top personal income tax rate for the 2011 tax year.

The KPMG report 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 11.

Most of the tax rate increases this year occurred in Europe.  Spain created new tax brackets for higher-income taxpayers, raising rates at the top end by 2 percent so that income over 175,000 euros is now subject to a 45 percent rate. 

Ireland, which started raising taxes in 2009, raised rates for the third consecutive year (a 1 percent increase in 2011), in search of additional tax revenues. 

Under pressure to reduce its budget deficit, Luxembourg hiked its top personal income tax rate by raising the unemployment surcharge for high-income earners and creating a “crisis contribution tax.” Altogether, these measures have effectively increased Luxembourg’s top personal tax rates by approximately 3 percent. 

“Personal income tax rate discussions have been high on the public agenda in 2011, as many economies continue to address debt concerns and walk a tightrope between further recovery and downturn, but these discussions have not yet translated into rate changes—particularly in the larger economies,” said Ben Garfunkel, national partner-in-charge of the International Executive Services practice at KPMG LLP. “Tax authorities are trying to identify strategies that successfully balance the pressures to identify and secure greater revenues with the imperative to keep their top personal income tax rates competitive, so that they can continue to attract top talent and encourage businesses to set up operations in their countries.”

The small Caribbean island of Aruba had the highest personal income tax rate at 59 percent, according to the report. Other countries with high top personal income tax rates included Sweden (57 percent rate), Denmark (55 percent rate), Netherlands (52 percent), Austria (50 percent), Belgium (50 percent rate) the United Kingdom (50 percent), and Japan (50 percent).

The KPMG report also compared both effective income tax and social security rates on USD $100,000 and USD $300,000 of gross income. Effective rates are derived by taking total taxes over gross income prior to any deductions (which may include social security) to allow for a better comparison, as deductions can vary greatly across countries.

The report found that Belgium had the highest combined effective personal income tax and employee social security rate on USD $100,000 (48 percent) and US $300,000 (55 percent) of gross income. France continued to have the highest combined employee and employer social security rate at over 50 percent of earnings, with Belgium the next highest at 48 percent.  Over one-third of the countries in the study had combined employer and employee social security-based effective tax rates of above 20 percent on USD $100,000 of gross income.

A copy of the report is available at http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/KPMGs-Individual-Income-Tax-and-Social-Security-Rate-Survey.aspx.

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