Fewer countries use personal income tax as easy source of revenue 

A decreasing number of countries use personal income tax to fill their budget deficits. Despite the economic crisis, only a small number of countries increased their personal income tax rate this year. This is the outcome of KPMG's Individual Income tax and Social Security Rate Survey 2011. Fewer than 15% of the 96 countries investigated adjusted their rates.

In 2010, nearly one in three countries raised their personal income tax rates. This year, Spain is the only one of  the world's top 20 major economies to raise its personal income tax rate. “Although personal income tax is high on the agenda of many governments this year as a result of their financial circumstances, this has not led to major changes up to now”, says KPMG Meijburg & Co's Robert van der Jagt.

Van der Jagt: “Nevertheless, change is in the air. In counties like the United States, France and Italy, there are calls in favor of raising the personal income tax rate for big earners. In the Netherlands, too, there are those that have argued in favor of increasing the highest rate to 60%; this would make the Netherlands the country with the highest tax rate in the world. This means that things could look a lot different this time next year.”

Although there are substantial differences between the tax rates in the various regions, the main changes this year occurred in Europe. Van der Jagt: "The average rate for Eastern European countries, for example, is just over 17%. That is less than half the rate in other European regions. This low rate is a consequence of the introduction of the flat tax several years ago. The relatively low rate in Eastern Europe is emphasized by the reduction of the Hungarian rate from 32 to 16%, and Hungary's switch to a flat tax regime . In Southern Europe, the rate is approaching an average of 39%. Only Spain and Portugal increased their personal income tax rate this year. In Spain, higher incomes were the main target. Spaniards now pay 2% more on the highest part of their income, resulting in a tax of 45% on income in excess of EUR 175,000. In Northern Europe, with its average rate of 40 minimal changes occurred in Latvia, Finland, Sweden, Iceland, and Ireland. Latvia reduced its flat tax by 1% and changes in the governments of Finland, Sweden and Iceland led to minor changes."

On a worldwide scale, Western Europe is still the region with the highest rates, according to the KPMG survey. The average rate is over 45%. Within the region, only a number of Swiss cantons apply an attractive rate. The only country in this region to raise its rate this year is Luxembourg. Worldwide, Aruba's rate of 59% is currently the highest. Other top-ten countries are Sweden (57%), Denmark (55%), the Netherlands (52%), and Austria, Belgium and the United Kingdom (50%). Aside from Aruba, Japan is the only large non-European country with a personal income tax rate of 50% or higher.