An In Depth Study on Personal Taxes

“Let’s Make Big Things Not Only To Create Progress, But To Engender Purpose”

— Mark Zuckerberg.

High earners on an income of 1.5million USD in G7 countries pay over 60% more pm average in income tax than those in BRIC economies, shows new research by UHY International, the international accountancy network that we are a member of.

Individuals earning 1.5million USD per annum in the G7 pay on average 719,751 USD in tax (47.9% effective tax rate) compared with 446,883 USD in tax (29.8% effective tax rate) in BRIC countries.

UHY found that those earning 1.5 Million USD in the Philippines paid US$ 517,642 in income tax last year, while those 25,000 USD paid 22% in income tax

Such high tax rates in G7 countries could risk driving wealthy individuals away as they may look to relocate to more competitive lower-tax jurisdictions, undermining longer term tax revenues. Whilst this argument that has been made in favour of low taxes for several decades the question is whether this is more pertinent as the mobility of HNWs has increased.

Partly because of this concern several G7 countries, including France, Canada, the US and the UK have recently taken measures to reduce top rate income tax bands. For example, in 2014, France’s rate was 45.8%, which is substantially higher than the current rate of 40.0%.

The UK’s new Prime Minister, Boris Johnson, said during his campaign for the Conservative party leadership that he would cut taxes for high earners by raising the 40% income tax threshold from 50,000 GBP to 80,000 GBP.

Out of all the countries studied by UHY, Russia had the lowest income tax rate, where all taxpayers, including high earners, pay just 13% income tax.

Denmark imposes the highest tax rate among the 30 countries studied by UHY. Individuals earning 1.5 million USD pay over half of their income in income tax – 53.2%. Denmark’s high taxes pay for the Danish welfare system, where higher education and healthcare are free at the point of use for all citizens.

Taxes on the top earners in G7 countries have eased off slightly since the financial crisis, perhaps a result of government concerns that they may have become uncompetitive given the low tax rates in the BRIC economies.

Conversely, as BRIC economies mature and their middle class expands, governments may increase their marginal rates on higher earners to meet the demand for improved public services. This could see the disparity between G7 and BRIC economies reduced.