KPMG’s Individual Income Tax and Social Security Rate Survey 2011
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18 Octombrie 2011 |
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Welcome to the 2011 edition of KPMG International's Individual Income Tax and Social Security Rate Survey. This is the fourth year that KPMG's International Executive Services (IES) practice has produced this resource. Drawing on KPMG's global network of professionals from KPMG member firms around the world, IES has compiled personal income tax and social security rates from 96 countries for each of the past nine years.
For ease of comparison, we have again concentrated on the highest rates of personal income tax payable to central governments in each country. Our review also extends to include social security – often the forgotten item when considering taxes.
From 2003 to 2009, we observed a gradual decline in top personal income tax rates. In 2010, largely due to rate increases in response to deficit concerns, this trend came to end with the average rates climbing 0.4 percent across the 96 countries surveyed. So did the upward rate movement continue in 2011?
No. The average rate actually went down by 0.3 percent in 2011 but this reversal of trend is not necessarily a true reflection of 2011 developments. In 2011, 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. Last year we saw more than twice as many instances of change 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. As many economies continue to address debt concerns and walk a tightrope between further recovery and downturn, personal tax rate discussions remain high on the agenda in 2011 but rate changes for the most part have yet to occur – particularly in the larger economies.
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 emphasized with Hungary slashing their top personal tax rate from 32 to 16 percent and adopting a flat tax rate system. The Hungary decrease is the highest seen globally this year. Ukraine rates however went in the other direction as deficit worries forced it to increase its flat rate from 15 to 17 percent.
In Southern Europe, where the average rate approaches 39 percent, tax rates increases are seen in Spain and Portugal. 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. 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, 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. Within the Western European sub-region, an attractive personal tax rate environment remains effectively limited to certain cantonal pockets within Switzerland. 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.
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. The introduction of temporary taxes by governments as a means providing additional revenues in times of short term crisis and uncertainty could become a more prevalent trend going forward.
Coming back to the regions, outside of Europe there is very little activity.
Within Asia and its diverse sub-regions, 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.
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.
In the regions of Africa (average rate of 27 percent), Oceania (average rate of 38 percent) and North America (average rate of 27 percent), highest rates of personal income tax remained static in 2011. 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).
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.
While these top rates may appear high, it is important to remember 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.
With regards to thresholds, our survey again highlights taxable income levels where top rates take effect. From this chart on page 29 it is clear that 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.
Our broader analysis comparing both effective income tax and social security rates on USD100,000 and USD300,000 of gross income further emphasizes the point that other taxes and the impact of deductions clearly need to be considered. Effective rates are derived by taking total taxes over gross income prior to any deductions (which may include social security) to allow for better comparison as deductions can vary greatly across countries. While Aruba and Sweden are at the higher end of each scenario, they do not actually have the top rate. Using a USD100,000 basis for example, Belgium, Croatia and Greece all have significantly higher combined effective rates ranging from over 43 percent up to almost 48 percent. The primary difference is social security.
Whether social security is a true tax may be debated, but in terms of cost, it can be material. We have therefore included a review of both the employee and employer contributions for completeness. Social security components can vary significantly including by country, employer and employee type. For ease of comparison across countries, we have again restricted the review to recognized core contribution requirements for employees earning gross income of USD100,000 and USD300,000. The results show 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 one-third 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.
With current and future increased demands on the social security infrastructures of the countries surveyed here, we expect further stress, on many already fragile systems, to continue. Given aging populations in many countries and the fact that many economies are still in dealing with recovery uncertainty, the social support schemes are as important now as ever. In order to compensate for this amidst budgetary constraints, we have seen some countries increase social security rates in 2011. We have also seen governments take steps to raise the minimum retirement age in order to keep more people in the workforce for a longer period of time in hopes of reducing the burden on the systems. 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 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.
