Swiss Canton Votes for Flat Tax

Christopher Owen

19 December 2007

Obwalden has become the first Swiss Canton to adopt a flat rate of tax for individual income taxpayers after 90 per cent of the electorate voted in favour following a recent cantonal referendum. According to Swissinfo, Obwalden had been forced to review its tax system following a complaint from Socialist Party deputy Josef Zisyadis that reforms put in place in January 2006 had created a regressive tax system, where wealthy taxpayers paid a lower tax rate than those on lower incomes, and which was therefore unconstitutional. Mr Zisyadis succeeded in getting the tax overturned by the Federal Tribunal in Lausanne in June, stating at the time that the court's decision had "put a brake on the fiscal cannibalism between the cantons". Following a previous referendum in 2005, Obwalden cut income tax for those earning more than SFr300,000 per year to 1 per cent from 2.35 per cent. But individuals earning up to SFr70,000 paid 8 per cent and those with income up to SFr300,000 paid up to 6 per cent. At the same time, Obwalden also cut corporate tax to 6.6 per cent, one of the lowest rates in Switzerland, prompting other cantons to respond. The cantonal tax system is currently being targeted by the European Commission, which argues that the Swiss tax regime, which allows cantonal governments freedom to set their own tax rates to attract new companies and wealthy foreigners, is in breach of the 1972 trade agreement between Switzerland and the EU.