Whopping 10% increase in top tax rate in the UK tops European increases, survey shows

News - Tax

Written by Ray Clancy

Thursday, 07 October 2010 10:55

The UK now has fourth highest top rate of personal income tax in the European Union, up from 13th in 2009, according to a new survey.

The country leads European and global upward trend in personal tax rates with the biggest rate rise seen worldwide in 2010 when the top rate of personal income tax was increased to 50%, the income tax and social security rate survey from KPMG shows.

The top rate of tax in Europe is in Sweden at 56.6% followed by Denmark at 55.4% and the Netherlands at 52%. The UK, Austria and Belgium are all fourth equal at 50%. Finland comes in at 49.6%, Ireland at 47%, Portugal at 45.9% and Germany and Greece at 45%.

While in Italy and Spain the top tax rate is 43%, in Slovenia and France it is 41%, Luxembourg has a top rate of 39%, Malta, 35%, Hungary and Poland both have 32% and in Cyprus it is 30%.

Eastern European countries have the lowest top tax rates, the survey also shows. In Latvia it is 26%, Estonia 21%, Slovakia 19%, Romania 16%, the Czech Republic and Lithuania are both on 15% and Bulgaria has the lowest rate at 10%. The European average is 37.2%.

The survey suggests that Europe and the rest of the world are following the UK’s upward trend in the top rate of personal income tax rates. While across the world taxes remained static in many locations, the general upward trend suggests governments are beginning to opt for a tax rate increase in some instances to combat deficit concerns.

‘In terms of personal income tax rates the UK is higher than key competitors, France and Germany. Although it is worth noting that the UK top rate of tax kicks in at a much higher earnings level than is the case in most of these countries,’ said Jayne Vaughan, tax partner in International Executive Services at KPMG in the UK.

‘And this makes a difference to competitiveness as individuals are highly mobile and they may decide to vote with their feet. And where employers are concerned, tax is a crucial business issue when it comes to deciding where to locate workforces,’ he explained.

According to the survey, the global decline in top personal income tax rates over the past seven years generally appears to have come to an end. This year’s average rate globally increased 0.3%, signalling we are in the midst of a turnaround.

The highest increase was 10% in the UK while in Iceland, amid the collapse of the banking sector, the flat tax regime was replaces with a progressive approach raising the top personal income tax rate by approximately 9%. Greece, in response to public deficit concerns, raised its top rate by 5%. Portugal, and most recently France raised top rates by 3% and 1% respectively to help address budget shortfalls.

Even the Isle of Man, with a long standing top rate of 18%, saw a 2% increase to 20% in 2010/11. At the opposite end of the spectrum, Denmark opted for a stimulus package in hopes of increasing consumer spending and as a result, decreased its top rate by almost 7%. Croatia dropped its top rate by 5%.

After the Europeans, the next highest taxes are paid by the people of the Asia-Pacific region but the margin continues to spread. There was very little movement in 2010, but propelled by a 5% drop in New Zealand and a 1% drop in Malaysia while average top rates in Asia-Pacific declined by 0.4% in 2010. The rate competition in this region continues to be led by Hong Kong and Singapore.

In Latin America, personal income taxes continue to remain relatively low. However, the region did not escape the upward rate development. A 2% decline in Panama was offset by a 2% increase in Mexico, but ultimately the 10% increase in Jamaica pushed average top rates up by 0.8% in 2010.