Recently, we’ve taken a look at some of the pros and cons of the flat tax system. However, it is also important to take a look at how this has worked in practice, around the world. While most of the planet doesn’t use a flat tax system, there are certainly countries who have, or still do. Let’s take a look at some of the regions that have utilized this economic plan and how…
The biggest collection of countries that utilized the flat tax is in Eastern Europe, and is representative of most of the former Soviet-bloc. These countries include Estonia, Latvia, Lithuania, Russia, Serbia, Slovakia, Ukraine, Georgia, Romania, and Kyrgyztan, among many others. The rates of these countries varies from 10%-33%, as many of them require different amounts of revenue, as well as own other forms of revenue streams. In these countries, the initial flat tax was met with great success, as many of these countries experienced high rates of initial growth. Sometimes this growth was has high as 10%! However, it becomes hard to exactly measure the effect that the flat tax had. Each of these countries hit hard economic decline after the Soviet Union fell. However, due to much support from Western countries, as well as the introduction of more free and open commerce, the rebound was inevitable. So there is much debate about whether the economic rise was due to the introduction of a capitalist system, or specifically had to do with the flat tax.
Greenland (and Iceland)
Today, the country of Greenland, depending on where in the country you live, has a flat tax of 37%-46%. A fairly similar country across the sea, Iceland, also had a flat tax in recent history. From 2007 to 2010, a flat tax of 22.75% was utilized, but eventually was switched to a progressive tax rate. In order to keep up with revenues, there rates are quite high for a country with a flat tax. This is because the greatest money-making source for both of these countries is their populations. Neither country has much to boast, in terms of natural resources, but both have a swath of highly educated citizens whom have relatively high median incomes. This makes the countries more reliant on taxes.
In the meantime, another place that it isn’t terribly unusual to see a flat tax is in South America. Bolivia is a classic example to study from this region. The country has a flat tax of 13%, currently. However, as is the case with many South American flat tax countries, the taxes here are much more confusing than they seem at first glance. While income taxes are very low, there is a large number of other taxes that must be dealt with. This includes a 25% tax on corporate income, but also an added 12.5% income and dividends tax to parent companies of a corporation, in addition to those companies’ own corporate tax.