Tuesday, August 17, 2010

Grenada is an Established Member of the Flat Tax Club

Fearful that the political leadership in Grenada was about to create a mini-Cuba in the Eastern Caribbean, the United States invaded the island in 1983 and restored the status quo ante government to power.

Grenada's current income tax system is based on the Income Tax Act 36/1994.  It set a single rate of 30% on all income exceeding East Caribbean Dollars 60,000, about US$22,346.  (US$1 = XCD 2.685) The rate and threshold apply to salaried persons, sole proprietors, and professionals.  The 30% rate also applies to company profits.

There is no tax on capital gains or dividends.

Per capita income is in the neighborhood of US$6,200, which means that a substantial number of employed or self-employed of the Grenadian population (about 104,000) is not caught in the income tax net.

Monday, August 16, 2010

Amendments to Serbia’s Personal Income Tax

Serbia first implemented its flat tax on personal income, set at 14%, in 2003 (the corporate rate was set at 10%, at which level it still remains). On March 23, 2010, the Serbian Parliament approved amendments to the Personal Income Tax Law. Details are as follows:

Individuals pay 12% on wages and salary income.

The capital gains tax is 10%, reduced from 20%.

The tax rate on income from dividends is 10%, reduced from 20%.

The tax rate on income from insurance is 10%, reduced from 20%.

The tax rate on a self-employed person is 10%, except a special rate of 15% is charged on self-employed income exceeding 6 times the average annual salary, after deducting exemptions. (Only the self-employed are subject to the 5% surcharge.) Salaried and self-employed receive an exemption on all income up to 3 times the average annual salary.

The 10% tax rate applies to income up to Serbian Dinars 3,288,528. (US$1 = SRD 80.98) Thus the 15% rate only takes effect on annual income exceeding $54,148. Average gross annual salary is $6,620.40. Only a very small portion of the population, and even among the self-employed, pay the surcharge.

Resident foreign nationals and Serbian citizens are subject to the same rates and enjoy the same exemptions.

Friday, August 13, 2010

The Republic of Abkhazia Maintains a Flat Tax

Abkhazia is an internationally unrecognized state but which has enjoyed a form of de facto independence since 1993. Its history can be read here and here.

Abkhazia has an independent tax system. Its main components are personal income tax, company profits tax, value added tax, and payroll tax. The Russian text can be read here and the English text here.

Personal income tax is charged at a rate of 10%.
Business profits tax is charged at 18%.
Value added tax is set at 10%.
Social insurance tax is set at 20% of payroll.

[Note: I have been unable to find publicly available information on details of the several federal taxes, e.g., deductions, exemptions, credits, etc., nor explicit details of local taxes. I will post this information as it becomes available.]

Thursday, August 12, 2010

Paraguay Adopts a 10% Flat Tax

Until 2010 Paraguay did not tax personal income. The government relied on value added tax, excises, company profits tax, and international trade taxes for its revenue.

To diversify its revenue base, effective January 1, 2010, Paraguay enacted a flat-rate personal income tax (PIT). It set the rate at 10% for 2010. The tax-free threshold is set at 120 times the minimum monthly wage (MMW is about US$ 268 in 2010). This puts the annual tax-free threshold at $21,000.

Estimates of the distribution of income in Paraguay indicate that the top tenth of the population receives about 47% of the national income. Average per capita income for the top tenth is about $12,000, which means that most individuals in the top tenth are not captured in the income tax net.

The personal income tax law broadens the base through 2017 by reducing the tax-free threshold each year by 12 times the MMW. The threshold falls to 108 MMW in 2011, then 96 MMW, 84 MMW, 72 MMW, 60 MMW, 48 MMW, reaching 36 MMW in 2017. In addition, the flat rate falls from 10% to 8% in 2011, where it remains through 2017.

The PIT allows deductions for contributions to the state social security system, up to 20% of income for charitable gifts, expenses related to producing income, deposits in banks, credit institutions, and investments joint-stock companies. Exemptions are provided for retirement annuities, interest income, and several other items.

There is one modest adjustment to the flat tax that will affect no more than 1-2% of taxpayers. During 2011-17, a 2% surtax will apply to individuals whose income exceeds 120 MMW. Despite this provision, I include Paraguay in the roster of flat-tax countries.  The small number of persons subject to the 10% rate, after allowing for legitimate deductions and exemptions, constitutes a minuscule part of the income-taxpaying population.


KPMG 2009 list of global tax rates which states that Paraguay had a flat tax since 2007 is wrong.  A first-hand account from Ascunsion can be read here.  Other articles stating 2010 as the starting date can be read here and here.

Tuesday, August 10, 2010

Flat Tax Countries Flag Display

The number of flat tax countries and political jurisdictions now stands at 37, of which only 3 predate the publication of the Hall-Rabushka flat-tax plan that was first published in the Wall Street Journal on December 10, 1981.  The full plan appears in our book The Flat Tax.  The photo that appears below is my flag collection of flat-tax countries and jurisdictions save a few that I have been unable to locate in stick form.

Wednesday, August 4, 2010

Four More Flat Tax Jurisdictions

I previously posted on March 10, 2010, the chronology of countries and non-internationally recognized, but effectively self-governing, jurisdictions that have adopted a variation of the flat tax on personal income or both personal and corporate income. The most recent post of July 16 added the Seychelles to the list.

A careful search found four more flat tax jurisdictions. In alphabetical order they are Guyana, the Nagorno Karabakh Republic (a disputed territory within Azerbaijan but effectively self-governing and closely linked with Armenia), the Democratic Republic of Timor Leste, and the Pacific Island nation of Tuvalu.

1. Guyana: Guyana taxes individuals at a flat rate of 33.3% on income exceeding Guyana dollars 420,000 per annum. (US$1 = 205.45 GYD) Capital gains are taxed as ordinary income. Corporations are taxed separately at 45% if a commercial firm and 35% if a non-commercial firm. (I regard any rate above 30% as too high because high rates encourage avoidance and evasion.)

2. Nagorno Karabakh Republic: Located within the boundary of Azerbaijan, the self-governing jurisdiction, although not internationally recognized, has lowered its rate of tax to 5% on both personal and business income. The government is keen to attract investment and reduce tax evasion by encouraging those in the shadow economy to surface.

3. Timor Leste (the former East Timor was decolonized in 1975 by Portugal and secured its independence from Indonesia in 2002): Effective January 1, 2008, the government of Timor Leste imposed a flat tax of 10% on monthly taxable wages exceeding $500. (Timor Leste uses the U.S. dollar as its official currency.) The 10% rate also applies to royalties, rent, and income from prizes and lotteries. A resident business enterprise is taxed at 10% on income exceeding $6,000. A non-resident individual business enterprise is taxed at 10%, the same as a non-individual business enterprise. The rate for the previous six years (2002-07) was 30% on the latter two.

4. Tuvalu: The Pacific Ocean country of Tuvalu has been independent since 1978. Personal income tax is charged at a flat rate of 30% with a tax-free threshold of the Australian dollar equivalent of US$2,220. Corporate tax rates on all taxable income are also set at 30%. Non-resident individuals are charged 40%.