Top personal income tax rates are rising worldwide

The worldwide decline in top personal income tax rates over the past seven years generally appears to have come to an end, as this year's average rate increased 0.3 percent globally, according to KPMG International's 2010 Individual Income Tax and Social Security Rate Report, released this week.

While tax rates remained static in most locations, including the United States, the finding of an upward moving trend in the KPMG report suggests 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 LLP's (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."

According to the KPMG report, the majority of rate movement in 2010 originated in Europe.  The United Kingdom implemented a 10 percent increase raising its top rate from 40 percent in 2009-10 to 50 percent in 2010-11 -- the highest rate increase seen 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 nine percent. 

Greece, in response to public deficit concerns, raised its top rate by five percent. Portugal, and, most recently, France raised top rates by three percent and one percent, respectively, to help address budget shortfalls.  Ireland's top rate also increased by one percent in 2010. 

Striking the Right Balance

"Personal tax rates can be a crucial deciding factor when evaluating where to locate workforces or the costs associated with international assignment programs," said Garfunkel.  "Tax authorities are trying to strike the right balance as they face increasing pressure to identify and secure greater revenues, while also trying to attract businesses to set up operations in their country.

"High income earners typically have the talent and credentials to migrate to countries that have lower personal income tax rates and a need for skilled labor," added Garfunkel.  "Attracting such individuals -- including their tax revenues and disposable income -- using a competitive personal tax rate, while also trying to address budget deficits, is a challenge, especially in the current economic environment."

Top Rates Decrease in Some Countries

Some countries are decreasing their top personal income tax rates.  Denmark opted to introduce a stimulus package in hopes of increasing consumer spending and as a result, decreased its top rate by almost seven percent.  Croatia, this past July, also dropped its top rate by five percent.

Other report findings include: 

  • 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.
  • Average top rates in Asia-Pacific declined by 0.4 percent in 2010.  New Zealand and Malaysia dropped their rates by five percent and one percent respectively. 
  • Although the average rates for Latin America jumped 0.8 percent in 2010, personal income taxes continue to remain relatively low in Latin America.

Related items:

You may like these other stories...

School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...
Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.