Singapore stays friendly amid taxing trend

Source : Business Times – 25 Aug 2009

KPMG feels global decline in income tax rates may come to an end soon

Singapore remains a tax-friendly environment, but a study by KPMG has found that the global decline in top personal income tax rates over the past seven years may end soon, as governments worldwide seek new sources of stimulus spending.

According to the latest Individual Income Tax and Social Security Rate Survey, Singapore’s taxable income level where the highest rate of personal income tax takes effect stood at US$217,317 – the third highest among the countries surveyed, excluding Switzerland.

At current exchange rates, this means that Singapore residents would bear the highest rate of personal tax only if their taxable income level exceeds S$320,000. At 20 per cent, the top tax rate also remains relatively low.

The finding came as the top average personal income tax rate dropped 0.3 per cent worldwide in 2009 to 28.9 per cent from 29.2 per cent in 2008.

Ooi Boon Jin, head of international executive services at KPMG, said: ‘Our study has recorded a general decline in top personal income rates over the past seven years, but for 2010 we are seeing indications that a reversal may be on the way.

‘It is becoming clear that some governments are turning to those in the highest income brackets amongst their current tax bases to increase revenue.’

The highest personal income taxes in the world are still paid by the citizens of the European Union. Denmark, with its personal income tax including a social security component, has the highest tax rate at 62.3 per cent.

However, with the introduction of flat-rate taxes in a number of Eastern European countries, the average rate for Europe has fallen from 41.1 per cent in 2003 to 36 per cent in 2009.

After the Europeans, the next highest taxes are paid by the people of the Asia Pacific, with Japan having the top rate at 50 per cent.

Average rates in this region have declined from an average of 36.1 per cent in 2003 to 33.9 in 2009, with a 0.7 per cent drop in 2009 – driven by some of the smaller countries, as the larger ones such as China, India and Japan have not seen rate changes in the past seven years.

Vietnam and Indonesia led, with each dropping their top rate by 5 per cent to 35 per cent and 30 per cent respectively. The Malaysian top rate fell from 28 per cent to 27 per cent.

Rate competition in the region continues to be led by Hong Kong and Singapore. With Hong Kong dropping its top rate to 15 per cent last fiscal year, it confirms its place as the lowest tax rate location in the region.

Chile has the highest rate in the Latin American region at 40 per cent.

The shift in income tax patterns has implications for international assignment programmes and future global workforce mobility, as HR professionals re-evaluate the costs associated with overseas postings and the like.

Mr Ooi said: ‘Assignees themselves need to be aware of how various taxes will affect their income both at home and in-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 labour. So a shift in personal income tax rates could potentially have an impact on global workforce mobility trends,’ he said.