The 2011 holding pattern for Personal Income Tax rates is now seeing a return to the 2010 trend of increasing rates, with the global average top Personal Income Tax rate going up by 0.3 %.
The annual Individual Income Tax and Social Security Rate Survey produced by KPMG’s International Executive Services (IES) practice shows this is only the third time that an increase has been observed over the past ten years that KPMG’s survey has been produced.
This upward trend in European Personal Tax rates is said to be the result of a lack of economic recovery and increasing debt concerns. Many economies have increased their highest rate of Personal Income Tax by either creating a new Income Tax rate band for the very high income earners or introducing a temporary tax addressing immediate budgetary deficit concerns.
France and Spain are prime examples of this. France’s reforms saw the introduction of two new tax rate bands for high income earners which has resulted in the top rate increasing from 41% to 45%. The rate increases are generally deemed as an ‘exceptional contribution’ which affects individuals reporting incomes of above €250,000.
In January 2012, Spain’s ‘complimentary tax’ aimed to help address the country’s public deficit. All taxpayers paid from 0.75% to 7% depending on the individual’s income level. This effectively meant that the rate of tax for individuals earning above €300,000 rose from 45% to 52%.
Elsewhere in Europe, there is very little change. Western Europe continues to have the highest Personal Tax rates of any sub-region globally (46.1%).
The average rate for Eastern Europe (16.7%) is still less than half of that of other European sub-regions, largely due to the prevalence of low flat tax initiatives. Poland and the Ukraine are notable for being the only two Eastern European countries of those surveyed to maintain a progressive tax band structure.
In Northern Europe, the average top Personal Income Tax rate is 36.5 %. Very little movement was observed in this sub-region during 2012, with the only changes being on the municipal front, as combined rates in Finland, Sweden and Iceland all experienced minor adjustments.
Aside from the changes in Spain, rates in Southern Europe have remained relatively stable at an average of 31.7%. Interestingly, while the world’s eyes have been keenly focused on Greece’s economy for much of 2012, the country’s top rate has remained unchanged at 45% since 2010 when it was increased from 40%.
In the United Kingdom the government has already announced plans to reduce the current top tax rate from 50% down to 45%, effective April 2013.
Globally, countries with top rates in excess of 50% are largely European: Sweden (56.6 % rate), Denmark (55.4% rate), Netherlands (55% rate), Austria (50% rate), Belgium (50% rate) and United Kingdom (50% rate). There were exceptions to this from Asia and Africa, specifically Japan (50% rate), and new survey participant Senegal (50% rate).