The UK now boasts the fourth-highest personal income tax rate in Europe, up from 13th position in 2009, according to a new study which suggests that the steady decline in personal income tax rates around the world is grinding to a halt.
A survey released on Tuesday by the accountants KPMG reveals that average income tax rates ticked up in 2010 after several years of declining. Sweden still claims the most onerous income tax system in the world as its highest rate is 56.6 per cent. Denmark ranks second, with a 55.4 per cent top tax rate; and the Netherlands third, with a 52 per cent maximum rate.
The top 50 per cent income tax rate in the UK, meanwhile, matches the rate in Austria, Belgium, and Japan and is just a tad higher than the 49.6 per cent maximum in Finland and the 47 per cent slapped on high earners in Ireland.
The results of KPMG’s analysis suggest that cash-strapped governments are pushing up rates to recover lost revenues amid the lingering financial crisis.
“The steady global decline in top personal income tax rates over the past seven years appears to have come to an end and is now in the midst of a turnaround,” said KPMG. “The movements within this year’s survey suggest governments in many cases have opted for a tax-rate increase approach to combat deficit concerns.”
Europeans still pay the highest income tax rates in the world and average rates in the European Union climbed by 0.4 per cent in the past year. The French pay a maximum of 41 per cent while the Greeks and the Germans pay 45 per cent.
Efforts to introduce lower flat taxes in some Eastern European countries, which offer more favourable regimes, have been put on hold. Estonia, for example, which created a flat tax in 1994 no longer intends to reduce its rate from 21 per cent by 2012, for example. Latvia has also pushed up its flat tax to 26 per cent this year, according to the research.
Citizens of some Asian countries also tend to be taxed heavily. The maximum rate in mainland China stands at 45 per cent, just a smidgeon lower than the 50 per cent rate in Japan. Hong Kong and Singapore remain tax-havens, meanwhile, with maximum rates of 15 per cent and 20 per cent respectively. New Zealand and Malaysia were two of the few countries to manage to push rates down in the past year; rich Malaysians pay a top rate of 26 per cent while wealthy Kiwis pay 33 per cent.
Assessing the impact of tax rates is complicated, according to KPMG analysts, as a number of factors must be considered. A point which must be studied is the income level at which top rates take effect. India, for example, has a relatively low maximum tax rate of 30 per cent, but it kicks in at 800,000 rupees (£11,299.37) The case is similar in Brazil, where the 27.5 per cent rate is levied in when a Brazilian earns 44,918 reales (£16,847.6).
As part of its study, KPMG analysts surveyed total taxes over gross income taken before deductions. But the advisers warned that deductions and other taxes increase rates dramatically in some countries. Social security contributions, for example, can ratchet up government’s yearly tax takes considerably. “Whether social security is a true tax may be debated but in terms of cost, it can be material and should not be forgotten”, claimed KPMG’s analysts.