The worldwide decline in top personal income tax rates over the past seven years has come to an end, as this years average rate increased 0.3 percent globally.
KPMG Internationals 2010 Individual Income Tax and Social Security Rate Report, released Monday, found that while tax rates remained static in most locations, including the U.S., the upward-moving trend suggests that some governments are beginning to opt for a personal tax rate increase to help combat deficits and raise additional revenue.
In the current economic environment, as many countries are faced with increasing budget deficits, they need funding for various economic stimulus packages, said Ben Garfunkel, national partner in charge of KPMG LLPs (U.S.) International Executive Services practice. Our study indicates that many of these countries are levying tax increases on their highest-earning taxpayers in order to increase revenue. We also see governments becoming increasingly sophisticated and rigorous in the framing and application of their tax rules.
The majority of rate changes occurred this year in Europe. The United Kingdom implemented a 10 percentage point increase, raising its top rate from 40 percent in 2009-10 to 50 percent in 2010-11 the highest rate increase globally this year.
Other Western European governments have followed suit in an attempt to increase tax revenues. Iceland, amid the collapse of the banking sector, replaced its flat tax regime with a progressive approach raising the top personal income tax rate by approximately 9 percentage points.
Greece, in response to public deficit concerns, raised its top rate by 5 percentage points. Portugal, and most recently France, raised their top rates by 3 percentage points and 1 percentage point, respectively, to help address budget shortfalls. Irelands top rate also increased by 1 percentage point in 2010.
Some countries are decreasing their top personal income tax rates, however. Denmark opted to introduce a stimulus package in hopes of increasing consumer spending and as a result, decreased its top rate by almost 7 percentage points. Croatia also dropped its top rate by 5 percentage points in July.
The low flat-tax initiatives of Eastern European governments have stagnated. Estonia has abolished its plan to reduce its flat tax rate to 18 percent by 2012, while Latvia increased its flat tax from 23 percent in 2009 to 26 percent in 2010. The average top rates in the Asia-Pacific region declined by 0.4 percentage point in 2010. New Zealand and Malaysia dropped their rates by 5 percentage points and 1 percentage point respectively. While the average rates for Latin America jumped 0.8 percentage point in 2010, personal income taxes continue to remain relatively low in Latin America.
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