The Flat Tax Spreads to Belarus

November 30, 2008

By Alvin Rabushka


Effective January 1, 2009, Belarus will replace its five-bracket personal income tax (PIT) with a flat-rate tax of 12%. The current PIT imposes a marginal tax rate of 9% on annual aggregate taxable income up to BYR 3,402,000. Thereafter, the rates are 15% between BYR 3,402,001-8,505,000, 20% between BYR 8,505,001-11,907,000, 25% between BYR 11,9077,001-15,309,000, and 30% over BYR 15,309,001. ($1=BYR 2,142 as of November 28, 2008. The Belarus ruble has remained in a narrow trading range of $1=BYR 2,142-2,160 during 2004-8.) Taxpayers are allowed a basic deduction for themselves and their children up to the age of 18. Under existing law, dividends are taxed at 15% and royalties at 40% while interest and capital gains are tax-free. Further details of the new Belarus 12% flat tax will be posted here as they become available.

Belarus selected a flat rate of 12% to be 1% less than Russia’s 13% flat tax.

The corporate profits tax remains at 24% and value added tax at 18%, both harmonized with Russia, with whom Belarus has single-market arrangements.

The Flat Tax Spreads to the Canton of Uri in Switzerland

November 6, 2008

By Alvin Rabushka


Switzerland has a three-tiered income tax system in which income taxes are levied at the federal, cantonal, and municipal level. On average, about a third of all personal income taxes is collected at each level, although there is wide variation among the twenty-six cantons and some 2,900 municipalities. The federal income tax consists of nine brackets that range from 0% on the first Swiss francs (CHF) 25,000 ($1 = CHF 1.175) to a top rate of 13.2%, after which it falls to 11.5% on income exceeding CHF 716,500.

On September 28, 2008, the Canton of Uri adopted a flat-rate personal income tax to commence January 1, 2009. The new law imposes a flat-rate of 7.2% for the canton, and 7.2% for each municipality in the canton. An additional 1% for churches brings the total to 15.4%. The law includes a personal deduction of CHF 14,500 along with a married deduction of CHF 11,000 and child deductions ranging from CHF 8,000 to CHF 20,000.

A married taxpayer with two children with a gross income of CHF 100,000 would be allowed to deduct, in addition to CHF 41,000 for spouse and children, another CHF 11,850 for old age and survivors insurance, and another CHF 7,300 for job-related expenditures and insurances. This leaves a taxable base of CHF 37,350 subject to the two flat rates for cantonal and municipal taxes. Including federal tax of CHF 106, total tax of CHF 5,484 represents less than 6% of gross income.

The tax rate on profits on domestic Swiss enterprises is a flat 4.7% at both the canton and municipal levels. To this is added 1% for churches, resulting in a flat-rate of 10.4%. A holding company which has no active business in Uri is exempt from cantonal and municipal taxes. There is a small municipal wealth tax of 0.001% that does not take effect until wealth reaches CHF 2 million.

Uri thus joins the Canton of Obwalden with a flat tax, Other cantons are actively exploring the flat tax as part of their plan to attract investment and high-income individuals.

The Flat Tax at Work in Russia: Year Seven, 2007

August 28, 2008

By Alvin Rabushka

The Federal Treasury of the Russian Federation has compiled the data for total taxes and revenues for the consolidated federal and regional budgets for 2006. The data show that the 13% flat tax on personal income continues to achieve very positive results.

In 2007, the Treasury collected 1,266.6 billion rubles ($1=RUB24.6) in personal income tax receipts, a nominal increase of 36.1% over the 930.3 billion rubles in 2006. After adjusting for annualized consumer price inflation of 11.9% in 2007, real personal income tax revenue rose 17.8% in 2007. Total real ruble revenue has substantially more than tripled in the seven years since the 13% flat tax was implemented on January 1, 2001. It should be recalled that the top marginal rate in 2000 was 30% before the implementation of the 13% flat tax. The low flat rate has contributed to the decline in capital flight, improved taxpayer compliance, and increased revenue.

The 13% flat tax has become a stable feature of Russia’s tax system. With the rise in real incomes percolating through the economy, receipts continue to grow at a healthy clip.

Trinidad and Tobago Joins the Flat Tax Bandwagon

April 20, 2008

By Alvin Rabushka


Effective January 1, 2006, Trinidad and Tobago joins the ranks of the flat-tax countries. It implemented a flat tax of 25%, replacing the previous two-bracket system of 25% and 30%. Other features included raising the personal allowance from TTD (Trinidad and Tobago dollars) 25,000 to TTD 60,000 ($1 = TTD 6.265). A previously preferential TTD 40,000 allowance for individuals 60 years and over was eliminated, along with deductions of up to $18,000 for mortgage interest and $10,000 for first-time homeowners. Short-term capital gains are taxed as ordinary income.

The corporation tax was reduced from 35% to 25%, except for petrochemical and gas refining companies, which are taxed at 35%, and oil and gas exploration companies, which are taxed at 55% (of which 5% represents unemployment insurance). As of 2006, the rates for wages, salaries, self-employment income, and non-energy corporation income are a uniform 25%.

In 2008, the deduction for contributions to approved pension fund/annuity plans was increased from TTD 12,000 to TTD 25,000. The tax rate on dividends was lowered from 15% to 10%, which reduced the double tax on corporate income by 4.25%. For corporations, the first-year write-off for the cost of investment in plant and machinery was raised from 60% to 75%.

Kazakhstan Joins the Flat Tax Bandwagon

February 25, 2008

By Alvin Rabushka


On February 1, 2006, the president of Kyrgyzstan signed into law a change in the country’s tax code that substituted a 10% flat tax on individual income in place of a graduated structure of rates between 10-20%. At that time the president of neighboring Kazakhstan said that his country would consider implementing a flat tax in 2007.

Kazakhstan enacted substantial changes in the country’s tax code on July 7, 2006, and December 11, 2006. Effective January 1, 2007, a 10% flat rate on taxable individual income replaced the country’s previous six-rate system of 5, 10, 15, 20, 30, and 40% depending on income. The lowest 5% rate applied to the first 69,600 Tenge (KZT) of income with the top 40% rate on income exceeding 348,000 KZT. ($1 = 120.5 KZT) The 10% flat tax exempts from taxation a personal allowance linked to the minimum wage level.

Other changes reduced the interest withholding rate for individuals to 10% and the domestic individual dividend withholding rate to 5%. Self-employed individuals using simplified tax returns are charged a 3% flat rate. Capital gains on government bonds and the sales of securities listed on a stock exchange are tax-exempt.

The Flat Tax is on the Agenda in Hungary

January 14, 2008

By Alvin Rabushka


Hungary is surrounded on several sides by flat tax countries: Slovakia in the north, Ukraine in the northeast, Romania in the east, and Serbia in the south. Near flat-tax neighbors include Bulgaria, Montenegro, Macedonia, and the Czech Republic. Hungary’s business daily Világgazdaság reported on January 11, 2008, that the current coalition government, which consists of the Socialist Party, the senior member of the ruling coalition, and the market oriented Free Democrats, is considering four tax measures to boost economic competitiveness. The chosen measure is expected to take effect in January 2009.

One tax reform proposes to reduce the tax wedge on labor by lowering the social security contribution (payroll tax) from 29% to between 19-21%. Part of the lost revenue would be recovered with an increase in the value added tax from 20% to 22-24%.

Another would reduce the corporate tax burden either by lowering the current 16% corporate rate or abolishing the 4% solidarity tax imposed on corporations.

The remaining two reforms constitute alternative flat taxes. One would broaden the tax base by including social security contributions in the income tax base and slashing the rate to a very low level, which was the approach taken in the Czech Republic’s 15% flat tax. The other flat tax would be applied to personal income, excluding social security contributions from the tax base, and perhaps also applying the same flat rate to the corporate and value added taxes.

Coalition deliberations are expected to conclude in late January to permit the spring session of Parliament to enact the chosen measure into law.

The Flat Tax Begins to Percolate in New Zealand

January 14, 2008

By Alvin Rabushka

New Zealand is scheduled to hold general elections for the 49th session of its parliament in late 2008, but no later than November 15, 2008, to comply with the convention that sessions shall not exceed three years. Current polls suggest that the opposition National Party will supplant the Labour Party as the leading vote-getter, but whichever wins a plurality of votes may have to form a coalition with the Green Party. Other minor parties include the Maori and the First-ACT parties.

Polls show that voters in the National, Green, Maori, and First-ACT parties favor a flat tax of 20% on both personal and corporate income, with the lost revenue to be recovered by increasing the Goods and Services Tax (a VAT) from 12.5% to 20%. A survey conducted by Shape NZ revealed that the combination of a 20% flat-rate personal and corporate income taxes coupled with a rise in GST tax was preferred by voters in the four parties to the alternatives of cutting the top personal rate from the current 39% to 30%, or setting the top personal and corporate rates (currently 33%) at 28%.

The New Zealand Business Council for Sustainable Development, which supports the 20% flat tax, maintains that it would encourage innovation and promote economic growth.

Shape NZ research can be accessed at www.shapenz.co.nz.