In a few countries, citizens do not have any tax obligations on income, capital gains, or inheritance and instead the government collects its revenue from sources like VAT and stamp taxes.
The Union Budget memes have settled down on social media, but the implications of the budget remain for the entire nation for all of the financial year.
A week after presenting her record 7th budget in the Union Parliament on July 23, Finance Minister Nirmala Sitharaman met financial influencers, some with certain political leanings.
A move that has been criticised by the opposition leaders and speculated by many to be an attempt to springboard positive reactions on the budget which has garnered negative reviews on the net.
The ruckus over the budget has also spotlighted the comparison of India’s tax policies with other nations of the world. Rajya Sabha MP and Aam Aadmi Party leader Raghav Chadha hit out at the Union Government over its budget by comparing it to the extremities in other nations.
“Citizens pay taxes like England to get services like Somalia.” A statement that opened floodgates of the good, the bad and the ugly in India’s taxation system versus the rest of the world.
India’s GST (Goods & Service Tax) has come in for sharp criticism ever since it was rolled in for the first time on July 1st, 2017. A form of indirect tax under which the goods and services are categorized into different tax slabs, starting from 5% and moving to 28%. The GST in India replaced taxes like excise duty, VAT, services tax, etc. However, the system has been met with scathing criticism from economists who opine that GST disproportionately burdens people, especially the middle and low-income groups.
Taxation policies in other nations
Largely, a progressive tax system (that takes a larger percentage of income from high-income groups) has been adopted by most countries including the USA. In the US, The Federal Income tax brackets for tax Year 2024 remain unchanged at 10%, 12%, 22%, 24% and moving onto 32%, 35% and then 37%. The income threshold for each bracket is adjusted each year to reflect inflation.
However, the US has a marginal tax rate which means that all individuals, with income up to $11,600 will pay a 10% tax. In the UK too, tax is charged at graduated rates, with higher income rates reserved for higher income bands. Pretty much like in India, there is a standard personal allowance, which is the deductible amount you do not have to pay tax on. The current standard personal allowance in the US is £12,570.
Tax-free countries in the world
While taxes are the major source of revenues for any government and tax-free status might be unimaginable in some nations, it is a reality in many. The most widely known tax havens of the world include the British Virgin Islands, Cayman Islands, and Panama, among a few others.
UAE — No personal income tax
No personal income tax is what makes the UAE an enviable destination for citizens not residing in the Emirates. As a tax-free country, apart from having no implications on personal incomes, the UAE also has no obligations for registration or reporting. While it does not levy any form of income tax on individuals, however, 5% value-added tax is levied on the purchase of goods and services, also levied at each stage of the supply chain and eventually borne by the end consumer. The UAE also levies excise tax on goods considered harmful or whose consumption is discouraged. It also levies corporate tax on corporations, business entities and their net income or profit.
The Bahamas – no tax on income, capital gains & inheritance
A tax haven, the Bahamas is one of the most attractive countries for investors due to its taxation policies, apart from the fact that it is geographically near to the US. The country does not impose income tax, capital gains tax or inheritance tax on its citizens. The government of the Bahamas derives its income from revenue sources such as VAT and stamp taxes.
Countries with high tax rates
On the flip side, some countries have intimidating single and family income tax rates. Tax rates are a very critical factor before moving to any nation. Countries like Belgium are levying very heavy taxes, with a top progressive tax rate of 50%. Most sources of income like property, work, and investments are all taxed and the top rate of capital gains is 30%. The current personal deductible allowance is €10,570.
In Denmark, too, a progressive tax rate is followed, which caps out at 52.07%. The Danish citizens pay tax on almost all sources of income and the country levies, municipal taxes, social security taxes, capital gains etc. The spouses must file their tax returns separately.
However, the citizens of the West African country Ivory Coast were found to pay the highest income tax in the world according to last year’s findings by World Population Review. The highest personal income tax rates in 2021-23 in the nation were found to be a whopping and almost discouraging 60%. Regardless of the rates, taxes must reflect in the services provided by the government and debatably, that is hardly the case in many nations.
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