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25 February 2011

Corporation tax rates around the world

The US and Japan have the highest rates of corporation tax in the world.

By George Eaton

In my column in this week’s magazine, I look at how corporation tax rates vary around the world. I thought I’d share some of the most notable findings with you.

In Britain, corporation tax stood at 52 per cent from 1973-81 but it has since been reduced by Conservative and Labour governments alike. Over the course of her premiership, Margaret Thatcher cut the tax to 34 per cent and John Major reduced it further to 31 per cent. In his final budget as chancellor, Gordon Brown cut the tax to 28 per cent, a reduction funded by the ill-fated abolition of the 10p tax band.

George Osborne plans to reduce the headline rate to 27 per cent this April and to 24 per cent by the end of this parliament, a move that will give Britain the second-lowest rate in the G20 (Turkey has a 20 per cent rate).

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Ireland retains its much-cherished 12.5 per cent rate (the lowest in the OECD), but the Franco-German bid to abolish “distorting” rates means this may not be the case for much longer. Surprisingly, the countries with the highest rates of corporation tax are the United States (39.25 per cent) and Japan (39.5 per cent), the largest and the third-largest economies in the world.

Despite the reduction in UK corporation tax from 52 per cent to 28 per cent, revenue from it rose from 5.4 per cent of the total tax take in 1979 to 7 per cent in 2009. So, is this a vindication of the Laffer curve? Not necessarily. A likelier explanation is the decline in wages as a share of GDP (from 64.5 per cent in 1975 to 53.2 per cent in 2008) and the concurrent rise in profits.

As Gavin Kelly suggested in a recent Staggers post, one of the defining challenges for British capitalism is to recouple growth and wages.