Madagascar Enhances its Flat Tax

To improve the investment climate in the African island nation of Madagascar, located off the southeast coast of the African continent, the government’s 2010 budget reduced the flat-rate personal income tax from 24% to 23%, with a personal allowance of MGA 250,000 (US$1 = Malagasy Ariary 1,942), about $125 per month, or $1,500 a year.  Corporation tax was incorporated into the income tax code at the same 23% rate.

Flat Taxes Blog Highly Ranked in British Isles

This blog is ranked #28 in Economy blogs in the United Kingdom and Irish blogospheres.  Thanks to all you British and Irish readers who find it of interest.

Andorra Implements Non-Residents 10% Flat Tax

Andorra historically had no income or capital gains taxes on residents and non-residents.  In 2007, to slow property inflation, the government levied a 15% capital gains tax.

In late December 2010, Andorra published the Taxation of Non-Residents Act, 2010.  It subjects non-resident companies and individuals to a 10% flat tax on local-source profits and income, minus permitted expenses and deductions.  It plans to reduce capital gains tax on property from 15% to 10% in the near future.

The government plans on introducing a value-added tax to replace the existing consumption tax.  Following the imposition of a 5% VAT, the government next intends to apply the 10% flat tax to resident companies and individuals.

Malta Implements Non-Resident 15% Flat Tax

The publication of Legal Notice 106 - Highly Qualified Persons Rules - implemented a 15% flat tax for non-residents, effective January 1, 2010 (assessed in 2011) in specific eligible offices of employment in Malta for an initial period of five years.

The regulation lists categories of eligible positions and qualifying employment conditions.  The 15% flat rate does not apply to resident Maltese.

To benefit from the 15% flat rate, a qualified employee must earn income of at least €75,000, which is to be adjusted annually in line with the Retail Price Index.  A particular attractive feature of the scheme is that excess income over €5,000,000 is free of tax.

The Flat Tax is Alive and Well

Today, April 18, 2011, is the federal income tax filing deadline for 2011.  Sad to say, there is no simple postcard-size flat tax in our immediate future.  A flat tax is not in the cards anytime soon in North America or old Europe.

Elsewhere the flat tax thrives.  The IMF uses every tool at its disposal to persuade countries to abandon the flat tax to close budget deficits or improve their definition of fairness.  These entreaties continue to be rejected.  Commentators who smell any weakening of commitment to the flat tax are quick to rush into print, wrongly in every case, to proclaim the beginning of the movement to dismantle the flat tax.

I hope to report this year new entrants into the flat tax club.  Stay tuned!

Malaysia Promotes Preferential 15% Flat Tax

On April 12, 2011, Prime Minister Datuk Seri Najib Tun Razak announced that Malaysia would encourage Malaysian professionals working abroad to return home by making them eligible for a 15% flat-rate income tax for five years, competitive with Hong Kong and below the maximum 26% rate under current law.

Once in place, the government will likely face pressure to extend the 15% flat rate to Malaysian professionals working at home, and then to all Malaysians.

  

(Here’s hoping!)

Why the U.S. Needs a Flat Tax

You want another good reason for a simple, postcard-size flat tax in the United States.  Take a look at the growth of tax law.

                                (HT:  Dontmesswithtaxes.com)

Flat Tax Book Available in German, French, and Spanish

For those of you who would like to read The Flat Tax book in German, French, or Spanish, you can download a copy free of charge from the E-book page of the web site of the European Center of Austrian Economics Foundation, located in Liechtenstein.

I recommend that you browse the other pages of the ECAEF web site where you may find items of interest.  I will be speaking at a conference in Vaduz on May 20, 2011, on "The Economics of Regulations."

Newly Independent Southern Sudan Joins the Flat Tax Club of Nations

During January 9-15, 2011, qualified voters of the Southern Sudan Referendum overwhelmingly voted for independence.

Sudan became independent on January 1, 1956.  During 1956-2002, two lengthy civil wars were fought, largely between the Arabic Muslim north and the Christian African tribal south.  More than 2.5 million people were killed and another 5 million displaced.  A final peace agreement was reached on January 9, 2005.  A new constitution for Sudan was ratified in July 2005.  It provided for a referendum to be held in January 2011 that allows the Southern Sudan to secede if it wishes. 

English: Map showing political regions of Sudan as of July 2006.

   Darfur

   Nuba Mountains and Blue Nile

   North Sudan

   South Sudan

   Eastern Front, area of operations July 2006

   Abyei, as defined by the Permanent Court of Arbitration

(Credit:  Lokal_Profil, Wikipedia)

During 2005-2011, the Interim Constitution of the Southern Sudan was the supreme law for the South.  GOSS is the acronym for the Government of Southern Sudan.

In accordance with the provisions of Article 59(2)(b) and Article 85(1) of the Interim Constitution, the Southern Sudan Legislative Assembly enacted the Personal Income Tax Act, 2007.  The law established a tax-exempt threshold of SDG 300 (three hundred Sudanese Pounds) per month.  (US$1.00 = SDG 2.50) Above that all taxable income is charged at a flat rate of 10%.
     

The Southern Sudan has had a flat 10% personal income tax since 2007.  With passage of the referendum, Sudan joins the ranks of independent countries with a flat tax.

The Sudanese government in Khartoum has a slightly graduated tax system of three rates: 5%, 10%, and 15% (see Appendix IV, page 42).  The personal income tax exempts the first SDG 9,050 from taxation.  Thereafter, successive rates of 5% and 10% are levied on the next SDG 120 and SDG 240 respectively, after which a fixed rate of 15% is applied.  The combined SDG 360 of the two lower rates amounts to about 4% of the value of the tax-free threshold of SDG 9,050.  The number of salaried persons falling into those two intermediate brackets is likely to be a trivial fraction of total salaried personnel.  In that regard, Sudan has a Hong Kong-style flat tax of 15%.

Armenia Moves Within a Hair of a Flat Tax

On June 24, 2010, Armenia’s National Assembly reformed its tax code.  Effective January 1, 2011, all exemptions and deductions are removed from the personal income tax.  All income up to 120,000 drams (US$1.00=AMD 363.4) is taxed at 24.4%, with income above AMD 120,000 at 26%.  Armenian commentators describe the reform as a practically one-rate (flat-rate) tax. The new “almost flat” tax replaces the previous regime of granting a deduction of AMD 30,000, 10% on taxable income up to AMD 80,000 and 20% above AMD 80,000.  (The flat-rate profits tax increased from 20% to 26%.)

The rise in the personal income tax rate is offset as follows:

Elimination of the 3% social tax on employees.

Elimination of the sliding scale social tax on employers reaching 20% above AMD 100,000 per month.

Reduction in Value-added tax from 20% to 18%.

Bing Crosby Sings Out For The Flat Tax

A new rendition of Bing Crosby’s famous song is available for this year’s holiday season.

I’m dreaming of a low flat tax

Just like the ones in Eastern Europe

Where the forms are simple

And the rates are low

And their economies flourish and grow.

I’m dreaming of a low flat tax

With every holiday card I write

May your days be merry and bright

And may all your taxes be flat and light.

Happy caroling.

Thanksgiving: Giving Thanks for the Flat Tax

Romania: On November 22, 2010, Romania’s Senate adopted a draft law by a 54 to 31 vote to reduce the flat tax from its current 16% rate to 10%.  Proposed by Economy Minister Ion Ariton, the bill was supported by opposition lawmakers.  The argument in support of the 10% rate was that it would both generate growth and increase revenue.

If the larger Chamber of Deputies approves the rate reduction, it will become law.

As expected, the IMF urged Romania not to lower its flat rate to 10%, insisting that a rate cut would reduce revenue.  Stay tuned!

Estonia: In a recent radio interview, Prime Minister Andrus Ansip defended the flat tax, rejecting a proposal by the opposition Center Party to switch to a graduated rate system.  Ansip pointed out that Estonia has the lowest public debt in the EU, which could be paid off using reserve funds.  In his view, the flat tax was instrumental in Estonia having the highest growth rate in the EU during the past decade.

Hungary: As previously blogged, Hungary joined the league of flat-tax members, enacting a 16% flat rate on personal income effective January 1, 2011.

For more information on these and other countries, check out Google Blog search and Google News on the flat tax.

Poland’s Finance Minister Talks Up Flat Tax

Polish Market Online reported on November 12, 2010, that Finance Minister Jacek Rostowski told Dziennik Gazeta Prawna newspaper that he would eventually like to introduce a flat tax. to replace the country's current two rates of 18% and 32%.  He gave no specific date.  The objective would be to strengthen growth. and would place Poland in the same low, flat-rate competitive league with neighboring flat tax countries

Hungary Enacts a Flat Tax

The Budapest Times issue of October 27, 2010, reported that Hungary’s Parliament approved the government’s proposal for a flat tax. Beginning January 1, 2011, personal income tax will be set at a flat rate of 16%. The 16% flat rate replaces the current two bracket system of 17% and 32%.

Turkey’s Opposition Party Advocates Flat Tax

Kemal Kilicdaroglu, a 61-year old former accountant, was unanimously elected on May 22, 2010, as leader of the Republican People’s Party (CHP), the main opposition party in Turkey’s parliament.

The CHP was launched by Mustafa Kemal Ataturk, modern Turkey’s revered founder.  In recent years, the party has fallen out of favor.  Kilicdaroglu is trying to revive the party’s fortunes.  Central to his vision is the flat tax, to simplify the tax system and lower the top tax rate to curtail the underground economy and tax evasion.  It is estimated that half of Turkey’s work force is not registered in the tax net.

Current personal income tax rates range between 15% to 38%.  Kilicdaroglu has not yet announced the choice of rate, but it is likely to be low, reflecting rates throughout Central and Eastern Europe’s flat-tax countries.

Flat Tax Stays on Track in Hungary

On October 18, 2010, Hungary’s governing Fidesz party submitted its tax reform package to the country’s parliament.

Following through on its pledge to implement a flat tax, the package includes a 16% flat tax on all forms of personal income to take effect on January 1, 2011. It would replace the current two-rates of 17% on income up to HUF (Hungarian forints) 5 million and 32% on income beyond that. (US$1=HUF 201)

A flat-rate corporate income tax of 10% would take effect from 2013. Those firms whose tax base falls beneath HUF 500 million would enjoy the 10% rate from January 1, 2011. Companies with a higher tax base currently pay 19% profits tax.

The projected revenue reductions are to be offset with a financial “crisis” tax on telecommunications, energy suppliers, and retail chains. Hungarian Prime Minister Viktor Orban believes that the flat rate tax on individuals and business is necessary to improve the country’s competitive position in Europe.

Obama Plants the Seeds of The Flat Tax

Speaking at Cayuhoga Community College in Parma, Ohio, on September 8, 2010, President Obama planted (perhaps inadvertently) the seeds of The Flat Tax.

The president called for full expensing (100% writeoff) of investment in plant and equipment for all U.S. businesses in 2011, thereby removing the current $250,000 limit in Section 179 of the U.S. tax code.

Obama’s 100% first-year writeoff leads, in a few steps, to The Flat Tax.

1. Make expensing permanent.

2. Apply the Alternative Minimum Tax (AMT) to all tax filers at a 19% rate. At the same time broaden the tax base by eliminating all deductions, exemptions, and credits except for a personal allowance.

3. Integrate the corporate income tax with the personal income tax at the same 19% rate. Eliminate double taxation of dividends, tax on capital gains, tax on estates, and deduction of interest.

Voila!

Flat Tax Countries and Jurisdictions September 2010

The table that appears below is a [corrected] current list of countries and jurisdictions (some not internationally recognized) that have adopted a flat tax as of September 1, 2010, with the current rates. It replaces an earlier posting that contained some incorrect numbers and dates. [HT: Thanks Charlie]

I have been unable to find the year of implementation for Nagorno Karabakh and Abkhazia.  I include Hungary based on the government's firm statement that a flat tax will begin on January 1, 2011.  Detailed information about the specific countries appears in previous posts, including an explanation of Paraguay's inclusion.

Flat Tax Jurisdictions
Jurisdiction	Year of Implementation	Personal Tax Rate Percent	Corporate Tax Rate Percent
Jersey	1940	20	20
Hong Kong	1947	16	17.5
Guernsey	1960	20	0
Jamaica	1986	25	33.3
Tuvalu	1992	30	30
Estonia	1994	21	0
Lithuania	1994	15	15
Grenada	1994	30	30
Latvia	1995	26	15
Russia	2001	13	24
Serbia	2003	12	10
Iraq	2004	15	15
Slovakia	2004	19	19
Ukraine	2004	15	25
Georgia	2005	20	20
Romania	2005	16	16
Turkmenistan	2005	10	20
Trinidad & Tobago	2006	25	25
Kyrgyzstan	2006	10	10
Albania	2007	10	10
Macedonia	2007	10	10
Mongolia	2007	10	10,25
Montenegro	2007	9	9
Kazakhstan	2007	10	15
Pridnestrovie	2007	10	0
Mauritius	2007	15	15
Bulgaria	2008	10	10
Czech Republic	2008	15	19
Timor Leste	2008	10	10
FBiH	2009	10	10
Belarus	2009	12	24
Belize	2009	25	25
Nagorno Karabakh		5	5
Seychelles	2010	15	35
Paraguay	2010	10	10
Hungary	2011	16	10
Abkhazia		10	18

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.

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.