In Switzerland a lump-sum tax currently available to rich foreigners is coming under heavy fire from citizens deeming the tax to be unfair.
Since 1920 Switzerland has offered the lump-sum tax in cantons, which allows wealthy foreigners not working in Switzerland to pay the flat rate, Pauschalsteuer, instead of income tax. Local canton authorities determine the amount of tax paid, but is typically based on five times the rental value of the resident’s property.
The tax benefits an approximate 5,000 of Switzerland’s 7.7 million residents, including many high profile celebrities such as Phil Collins, Tina Turner and Michael Schumacher, as well as people like Ikea founder Ingvar Kamprad who all moved to Switzerland to take advantage of the attractive tax offer.
The Argument For
Canton Financial Chiefs are strong proponents of the tax saying it generates CHF600 million (€492 million) additional revenue each year.
The beneficiaries of the tax also contribute an estimated CHF4.5 billion (€3.7 billion) every year to the economy through living expenses and also by buying and maintaining property. An amount that would be sorely missed should it disappear.
Many also argue that without the tax, some of the smaller cantons in the countryside would have little chance of attracting wealthy foreigners.
The Argument Against
The backlash against the tax has only arisen in recent years, despite its long history.
Although Switzerland faired well overall during the economic crisis, the middle class was hit disproportionately hard, and the wealth gap has become increasingly wide – in fact only Singapore and Namibia now have a greater inequality of wealth distribution than Switzerland.
It is because of this that the citizens are becoming increasingly unhappy with the tax, speaking out against a tax that allows wealthy foreigners pay proportionally less tax than those who live and work in Switzerland.
The disagreement surrounding the tax is very much one that is internal to Switzerland.
The Social Democrats, along with some other left-leaning political parties, have been very vocal and have launched a number of cantonal initiatives to try and get the tax abolished. The Alternative Left Party are also gathering signatures in the hopes of forcing a national vote.
The Government’s Stance
In efforts to appease the people of Switzerland, the Government has suggested the lump-sum taxes be raised to seven times the rental value of properties, and only people with an income of at least CHF400,000 (€328,000) will qualify.
Of the 26 cantons in Switzerland, only Zurich has so far abolished the tax, during a referendum in 2009. The effect has been felt with some of the 137 beneficiaries of the tax choosing to move to other cantons where the tax is still available.
Only 2 other cantons, Glarus and Thurgau, have voted and both have opted to keep the tax, although Thurgau did so by a slender majority. In Glarus, the issue is much less sensitive as only 5 residents qualify for the tax.
The Future of the Tax
With votes in Lucerne, St Gallen and Basel City in the coming months it will be interesting to see which way the votes go, and likely to indicate if a national vote on the issue will occur.
For now the lines have been drawn and sides have been picked. The days of this 90-year-old tax might well be numbered.