Hoover Daily Report

The Flat Tax Spreads to Central Asia and the Indian Ocean

via russianeconomy.org
Tuesday, August 8, 2006
The flat tax continued to pick up steam in 2006, spreading beyond Central and Eastern Europe.
 
On February 1, 2006, President Kurmanbek Bakiyev of Kyrgyzstan (Kyrgyz Republic) signed into law modifications in the country's tax code that established a 10% flat tax. It replaced the current corporate tax of 20% and the individual income tax with rates between 10-20%. Shortly thereafter, the president of neighboring Kazakhstan said that his country would consider a flat tax in 2007.
 
On July 5, 2006, the people of Macedonia voted to establish their own country. The inaugural session of the new parliament met on July 26. President Branko Crvenkovski appointed a new prime minister, Nikola Gruevski, leader of the rightist VMRO-DPMNE, to establish a government. Gruevski announced a 100-point reform program. One of its main pillars is the flat tax. It will be set at 12% beginning January 2007, reduced to 10% a year later. It will replace the current corporate tax rate of 15% and personal income tax rates that range between 15-24%. The purpose of the low 10% flat tax is to make Macedonia a country with one of the lowest tax rates in Europe in order to emulate the success of Estonia, Latvia, and Lithuania, which experienced strong economic growth after the adoption of their respective flat taxes.
 
The tiny island of Mauritius, located in the Indian Ocean about 1,500 miles off the southeast coast of Africa, approved its 2006-2007 budget in July 2006. The signal feature of the budget is the advent, on July 1, 2009, of a 15% flat tax on personal and corporate income. The flat tax will replace the current personal income tax of two rates, 15% on taxable income to 25,000 rupees (about $800) and 25% on the rest. It will eliminate much of the complexity and many of the current deductions and credits in the current system. The 15% flat tax will also replace the existing 25% rate on corporate income.
 
In late May 2006 the government of Kuwait indicated that it was studying a proposal to introduce income tax at a flat rate of 10%. The draft law is to be studied by the cabinet and, if approved, sent to the country's parliament for consideration.
 
Several other developments warrant mention. Guernsey, a British Crown dependency in the Channel Islands off the west coast of France, has had for many years a 20% flat tax on corporate and personal income. On July 10, 2006, its parliament approved a zero corporate tax rate and capped the maximum tax on individuals at ,250,000. The cap means that tax rates decline once taxable income exceeds ,1,250,000, transforming the territory's flat tax into a degressive tax.
 
The Isle of Man, a Crown dependency located in the Irish Sea between Great Britain and Ireland, reduced its corporate tax rate for trading companies from 10% to zero beginning April 5, 2006. Personal income will continue to be taxed at two rates, 10% and 18%, but be capped at £100,000, reducing tax rates on those with incomes exceeding £570,000 a year.


In Europe, the new Czech government is stalemated, which has temporarily put on hold plans for a 15% flat tax on personal and corporate income. The government of Slovenia, which earlier in 2006 proposed the idea of a 20% flat tax on personal and corporate income, has yet to send a measure to the country's parliament for its consideration.