Author: Denise Bedell, Valentina Pasquali
Project Coordinator: Alessandro Magno, Denise Bedell

The OECD defines tax as a compulsory unrequited payment to the government. A taxable base is the base amount on which the tax rate is applied—such as corporate income, personal income, or property. One commonly used tool for comparing taxation levels across different countries is the marginal tax rate, which is simply the rate on the highest income tax bracket. In 2012, Aruba had the world’s highest top marginal rate, 59%, followed by Sweden, 56.6%, and Denmark, 55.4%. At the other end of the spectrum, besides a handful of countries that do not have personal income taxes, Macedonia, Bulgaria, Albania and Bosnia-Herzegovina all showed the lowest top marginal rate, 10%.

Source: KPMG’s Individual Income Tax and Social Security Rate Survey 2004-2012

World’s Highest Marginal Tax Rate 2012

 

Dark red - highest ratesLight red - lowest rates

There are many ways to compare the tax burden that different countries place on their citizens—for example, the lowest income tax rate in a country, the highest income tax rate, corporate tax rates, marginal tax rate thresholds, the highest or lowest tax wedge, and so on. However, comparing tax rates can be difficult, given complex tax laws and the varying perception of what constitutes a high tax burden by different groups within an economy. Which is why the marginal tax rate is often used as a common denominator.

The OECD defines it as the tax rate applicable to the top slice or bracket of a taxpayer's income or other taxable income, where the relevant tax on such items is levied at progressive rates.

According to the latest KPMG’s Individual Income Tax and Social Security Rate Survey, top personal income rates across the world steadily declined from 2003 to 2009, rose, on average, in 2010, fell again in 2011, albeit slightly, and went back up in 2012 as a lingering economic crisis did not help abate governments’ concerns over ballooning deficits. “Interestingly,” writes KPMG, “this is only the third time that an increase has been observed over the past 10 years.” In 2012, the only countries that cut their top marginal rate were Fiji, which slashed it by a whopping 11%, and Luxembourg, which only applied a 1% reduction.

In general, tax regimes may be progressive—where tax rates increase as the taxable base increases—regressive—where the tax rate decreases as the taxable base increases—or proportional (also called a flat tax rate)—where the tax rate stays the same regardless of the size of taxable base. A tax system may use different taxation methods for different types of income—for example, a progressive tax for income tax and a flat tax for sales tax.

Many countries now use aspects of progressive tax—in particular as a taxation method for individual income tax. The US, for example, uses a progressive tax regime for taxing individual wage income.

For the 17 years from 1965-1981, the top individual marginal tax rate for American taxpayers was 70%—double the 35% top rate for 2012. (Source: Internal Revenue Service, BTN Research). The US now has the middle marginal tax rate among NAFTA partners, with 35% versus Mexico’s 30% and Canada’s 48%.

Source: KPMG’s Individual Income Tax and Social Security Rate Survey 2004-2012

World’s Highest Marginal Tax Rates, 2004-2012

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Notes:
• 0.0% = No personal income taxes are levied.
• For countries that tax sections of income at different levels, only the top level is presented.
• All tax rates are for residents.
• With the exception of Switzerland where the figure quoted includes the Zurich cantonal and communal rate, Canada where the figure quoted includes Ontario's provincial rate and Sweden, Finland and Iceland where the figures quoted include average rate across municipalities, amounts reported do not include state/provincial rates (i.e. the amount reported for the US represents the highest personal income tax rates charged at a federal level only).
• No other taxes have been included (such as social security tax, employment tax, etc.). The exception includes Sweden, Denmark (2003-2007 rates only) and Norway where the rates include a social security component