Simplified tax system to boost government revenues – report
This was the conclusion of a new report launched last week by the World Bank, the International Finance Corp. (IFC), and PricewaterhouseCoopers.
Paying Taxes 2008, the second report in an annual series on tax systems, covers 178 countries worldwide. The report concludes that there is a win-win opportunity for governments and firms if governments simplify tax systems, ease the compliance cost on business, and reduce tax rates.
This year, 31 economies improved their business tax systems, and 65 have done so over the past three years. Bulgaria was the top reformer, and Turkey was runner-up.
While reducing corporate income tax was the most popular reform, implemented in 27 economies worldwide, many countries have reduced the compliance burden by simplifying or eliminating other business taxes. Countries in Eastern Europe and Central Asia had the most reforms in 2006 and 2007, but tax rates remain highest there and in Africa.
The compliance burden is highest in Latin America and in Eastern Europe and Central Asia.
“Reducing the tax burden was the second most popular reform of the business regulatory environment this year. Despite previous reluctance to reduce tax burdens for fear of cutting government revenues, some governments that have implemented tax reform have reaped the benefit of higher investment and economic growth,”Rita Ramalho, co-author of the report and tax specialist with the World Bank-IFC Doing Business project, said.
Economies with a lower business tax burden also have more new firms entering the market. The case of Egypt is instructive. Two years ago it implemented major tax reforms, which included reducing the corporate income tax rate by almost half. This has increased the government’s tax base and revenues.
This year the top 10 economies for ease of paying taxes are, in order, Maldives, Singapore, Hong Kong (China), United Arab Emirates, Oman, Ireland, Saudi Arabia, Kuwait, New Zealand, and Kiribati.
The 10 economies where it is most difficult are, (ranked from 169 to 178), Panama, Jamaica, Mauritania, Bolivia, the Gambia, Venezuela, the Central African Republic, the Republic of Congo, Ukraine, and Belarus.
Complying with administrative tax requirements remains a real burden for business, the report said.
Globally, on average, a company spends almost two months a year complying with tax regulations — roughly 15 days for corporate income taxes, 21 for labor taxes and contributions, and 21 for consumption taxes.
However, there are wide variations among countries. For example, it takes 105 days to comply with consumption taxes in Azerbaijan but only one day in Switzerland.
The study allows direct comparison of tax systems from around the world. It shows how businesses are affected not only by tax rates, but also by the procedural burden of compliance.
The Paying Taxes study was carried out by PricewaterhouseCoopers and the World Bank Group as part of the World Bank Group’ — Doing Business 2008 report. The IFC is the private investment arm of the World Bank.
PricewaterhouseCoopers provides industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders.
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