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