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UHY Global Study: Lower earners benefit most from global reductions in income taxes over the past two decades

(November 29, 2016)

  • Canada cut tax on low income earners and maintained the tax burden on higher earners
  • GDP growth in Canada was average compared to that of the rest of world
Workers on lower incomes have benefitted more than higher earners from global reductions in income taxes over the past two decades, according to a new study by UHY, the international accounting and consultancy network.

The research reveals that the average global effective income tax rate for workers earning USD30,000 has dropped from 27% (1996) to just 16% today. Income taxes for individuals earning USD1 million dropped from 41.4% to 35.8% in the last twenty years.

Canadian taxpayers earning USD30,000 has dropped from 25% (1996) to just 16% today. Income taxes for Canadians earning USD1 million remained constant at 51% in the last twenty years.

The study found that on average, BRIC economies (Brazil, Russia, India, China) are cutting tax at a faster pace than G7 economies for both lower and higher earners.

UHY studied tax data in 26 countries across its international network, capturing the effective income tax rate for lower and higher income workers*.

India has seen the biggest cuts of any major economy for lower earners, who have seen their income tax rate fall by 28% (from 50% to 22%). Higher earners have also seen some of the most significant reductions (falling 17% from 51% to 34%). In the last ten years, the Indian taxation system has undergone significant reforms, with a number of tax rates rationalized and tax laws simplified.

Comments Bernard Fay, Chairman of UHY: “The majority of governments have focused on easing the tax burden on the take home pay of lower earners in the past twenty years.”

“BRIC economies have by and large led the way, and many developed economies have also made bold cuts to boost consumer spending power and boost economic growth.”

“However, while some major economies have worked hard to cut income tax rates, others - including the United States and Japan - are not keeping pace with the global average. This risks hampering growth.”

However, President-elect Donald Trump’s tax plan looks to reduce taxes across the board, but before any proposed changes can be made, they must be approved by Congress.

GDP GROWTH IN EMERGING ECONOMIES ALSO OUTSTRIPS REST OF WORLD
UHY’s data also reveals the extent of global economies’ GDP growth in the last thirty years, since the UHY network was founded in 1986.

Their figures show that emerging and developing countries have grown significantly in the past thirty years – China by 1,421% - far outstripping more established economies and well above the global average of 135% GDP growth (see third table below).

India (577%), Malaysia (479%), Bangladesh (350%) and Nigeria (333%) were also in the top five for GDP growth over the last three decades.

The Canadian GDP grew by 103% and the US GDP grew by 115% over the three decades.

Comments Bernard Fay, “Clearly, countries like China and India have boomed in recent years, but the scale of growth in many other emerging economies is also striking.”

“Developing nations have attracted high levels of Foreign Direct Investment as overseas companies have increasingly set up trade links and established operations in countries with lower cost bases to their own. This has helped many emerging economies invest in their own infrastructure as well as skills and knowledge bases, creating an upward spiral of growth.”

INCOME TAX RATES FOR LOWER EARNERS (USD30,000)
Rank Country 1996 Income Tax 2016 Income Tax Difference
Amount Rate Amount Rate Amount Rate
1 Spain 5,980.06 19.93% 7,482.73 24.94% 1,503 5.01%
2 Uruguay 1,800.00 6.00% 2,771.00 9.24% 971 3.24%
3 UAE 0.00 0.00% 0.00 0.00% 0 0.00%
4 Italy 8,079.00 26.93% 7,905.00 26.35% -174 -0.58%
5 Japan 2,632.00 8.77% 2,098.00 6.99% -534 -1.78%
6 Nigeria 5,083.68 16.95% 4,361.23 14.54% -722 -2.41%
7 Belgium** 11,550.75 38.50% 10,459.41 34.86% -1,091 -3.64%
8 USA 5,280.00 17.60% 4,037.00 13.50% -1,243 -4.10%
9 Brazil 6,234.18 20.78% 4,756.49 15.85% -1,478 -4.93%
10 Malta 6,038.00 20.10% 4,459.00 14.86% -1,579 -5.24%
11 Germany*** 4,762.16 15.87% 3,008.09 10.03% -1,754 -5.84%
- G7 6,011.26 20.04% 3,932.92 13.33% -2,078 -6.70%
12 China 9,900.00 33.00% 7,500.00 25.00% -2,400 -8.00%
13 UK**** 5,810.65 19.37% 3,115.36 10.38% -2,695 -8.99%
14 Canada 7,442.00 24.81% 4,659.00 15.53% -2,783 -9.28%
15 Denmark 12,229.20 40.76% 9,068.06 30.23% -3,161 -10.53%
16 New Zealand 7,887.00 26.30% 4,540.00 15.10% -3,347 -11.20%
- World 8,226.91 27.42% 4,830.95 16.10% -3,396 -11.32%
17 Croatia 9,686.16 32.29% 6,086.71 20.29% -3,599 -12.00%
18 Australia 7,050.00 23.52% 3,395.00 11.32% -3,655 -12.20%
- Europe 9,280.26 30.93% 5,592.00 18.64% -3,688 -12.29%
19 Netherlands 9,728.59 32.43% 5,682.10 18.94% -4,046 -13.49%
- BRICs 10,270.43 34.24% 5,684.13 18.95% -4,586 -15.29%
20 France 8,073.00 26.91% 2,708.00 9.03% -5,365 -17.88%
21 Poland 11,952.85 39.84% 6,392.38 21.31% -5,560 -18.53%
22 Russia 10,097.00 33.66% 3,900.00 13.00% -6,197 -20.66%
23 Republic of Ireland 9,805.33 32.68% 2,321.19 7.74% -7,484 -24.94%
24 India 14,850.52 49.50% 6,580.02 21.93% -8,271 -27.57%
25 Israel 15,000.00 50.00% 4,311.00 14.40% -10,689 -35.60%
26 Romania***** 16,947.64 56.49% 4,008.01 13.36% -12,940 -43.13%

INCOME TAX RATES FOR HIGHER EARNERS (USD 1 MILLION)
Rank Country 1996 Income Tax 2016 Income Tax Difference
Amount Rate Amount Rate Amount Rate
1 Uruguay 60,000.00 6.00% 275,662.00 28.00% 215,662 22.00%
2 Croatia 349,186.16 34.92% 394,086.71 39.41% 44,901 4.49%
3 UK**** 392,471.09 39.25% 431,774.32 43.18% 39,303 3.93%
4 Brazil 248,734.18 24.87% 271,506.49 27.15% 22,772 2.28%
5 Canada 506,508.00 50.56% 508,357.00 50.84% 1,849 0.28%
6 Israel 500,000.00 50.00% 500,000.00 50.00% 0 0.00%
7 UAE 0.00 0.00% 0.00 0.00% 0 0.00%
8 Nigeria 174,833.68 17.48% 171,977.23 17.20% -2,856 -0.28%
9 New Zealand 327,987.00 32.80% 323,421.00 32.30% -4,566 -0.50%
10 Malta 345,538.00 34.54% 340,262.00 34.03% -5,276 -0.51%
11 Spain 463,636.80 46.36% 439,857.08 43.99% -23,780 -2.37%
12 USA 375,576.00 37.58% 352,170.00 35.17% -23,406 -2.41%
13 Australia 462,246.00 46.26% 430,029.00 43.01% -32,217 -3.25%
14 Italy 492,507.00 49.25% 458,153.00 45.82% -34,354 -3.43%
- G7 481,674.16 48.16% 434,090.47 43.40% -47,584 -4.76%
15 Belgium** 543,688.58 54.37% 494,833.19 49.48% -48,855 -4.89%
- World 414,050.87 41.40% 357,815.25 35.79% -56,236 -5.61%
16 Netherlands 589,554.45 58.96% 510,555.11 51.06% -78,999 -7.90%
17 China 330,000.00 33.00% 250,000.00 25.00% -80,000 -8.00%
- Europe 493,847.01 49.38% 413,076.62 41.04% -80,770 -8.35%
18 Japan 498,159.00 49.82% 411,997.00 41.19% -86,162 -8.63%
19 Republic of Ireland 475,405.33 47.54% 388,785.00 38.85% -86,620 -8.69%
20 Germany*** 549,116.00 54.91% 448,063.00 44.81% -101,053 -10.10%
21 Denmark 637,533.00 63.75% 534,006.00 53.40% -103,527 -10.35%
- BRICs 360,000.43 36.00% 248,643.43 24.87% -111,357 -11.13%
22 France 557,382.00 55.74% 428,119.00 42.81% -129,263 -12.93%
23 Poland 449,045.08 44.90% 316,792.38 31.68% -132,253 -13.22%
24 India 514,400.52 51.44% 343,067.22 34.31% -171,333 -17.13%
25 Russia 346,867.00 34.68% 130,000.00 13.00% -216,867 -21.68%
26 Romania***** 574,947.64 57.49% 149,722.87 14.97% -425,225 -42.52%


*In this study, lower earners are defined as those earning USD30,000. Higher earners are defined as those with incomes of USD1million. The calculations are based on a single, unmarried taxpayer with no children.

**For Belgium the income tax data comes from 1999 and 2016.

***In Germany, income tax is taken after social deductions and contributions are deducted.

****For the United Kingdom, these figures exclude UK National Insurance Contributions (NIC). NIC is payable by individuals on their income earned from employments, self-employments and partnerships in addition to Income Tax. The highest rate of NIC in 2016 is 12%.

*****In Romania, for 1996, tax was applied with progressive rates, but since 2005 Romania changed to a fixed quota with a standard rate of 16%, compared to the effective rates shown in the tables.
CHANGE IN GROSS DOMESTIC PRODUCT (GDP) SINCE THE UHY NETWORK WAS FOUNDED IN 1986
Rank Country GDP (USD billion) Difference
1986 2016
1 China 611.90 9,306.80 1421.0%
2 India 377.55 2,556.99 577.3%
3 Malaysia 57.64 333.52 478.6%
4 Bangladesh 36.75 165.47 350.3%
- BRICs 881.09 3,943.15 347.5%
5 Nigeria 113.63 491.64 332.7%
6 Israel 70.22 283.21 303.3%
7 UAE 92.73 363.85 292.4%
8 Ireland 68.22 257.78 277.9%
9 Pakistan 63.59 231.34 263.8%
10 Egypt 74.79 257.00 243.6%
11 Guatemala 17.25 51.68 199.6%
12 Malta 3.20 9.53 198.1%
13 Poland 205.62 576.28 180.3%
14 Peru 71.07 195.95 175.7%
15 Uruguay 19.25 51.21 166.1%
16 Australia 524.08 1,337.52 155.2%
- World 32,632.70 76,565.98 134.6%
17 Argentina 224.79 521.71 132.1%
18 Mexico 548.74 1,244.30 126.8%
19 USA 7,956.50 17,149.17 115.5%
20 Slovakia 49.68 102.48 106.3%
21 Spain 723.59 1,478.28 104.3%
22 New Zealand 83.19 169.67 104.0%
23 Canada 902.53 1,829.33 102.7%
24 Brazil 1,152.43 2,315.20 100.9%
25 UK 1,389.52 2,709.56 95.0%
- G7 2,763.87 5,158.18 86.6%
26 Netherlands 465.69 867.65 86.3%
27 Austria 228.36 416.24 82.3%
28 Belgium 292.18 514.21 76.0%
29 Portugal 131.68 229.95 74.6%
- Europe 11,084.71 19,264.33 73.8%
30 Jamaica 8.29 14.40 73.8%
31 France 1,653.19 2,808.80 69.9%
32 Czech Republic 133.47 225.62 69.0%
33 Germany 2,232.65 3,747.17 67.8%
34 Puerto Rico 57.29 92.87 62.1%
35 Japan 3,669.13 5,792.43 57.9%
36 Bulgaria 34.78 53.65 54.2%
37 Denmark 223.98 335.55 49.8%
38 Croatia 39.56 58.91 48.9%
39 Italy 1,543.59 2,070.84 34.2%
40 Romania 143.55 190.35 32.6%
41 Russia 1,382.50 1,593.63 15.3%

GDP data from the United States Department of Agriculture.

About UHY
Established in 1986 and based in London, UK, UHY is a network of independent audit, accounting, tax and consulting firms with offices in over 320 major business centres across more than 90 countries.

Our staff members, over 7,600 strong, are proud to be part of the 16th largest international accounting and consultancy network. Each member of UHY is a legally separate and independent firm. For further information on UHY please go to www.uhy.com.

UHY is a full member of the Forum of Firms, an association of international networks of accounting firms. For additional information on the Forum of Firms, visit www.forumoffirms.org



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