Paying Taxes 2010 Global Report (via World Bank)

8/9/2019 Paying Taxes 2010 Global Report (via World Bank)

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Paying Taxes 2010The global picture


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PricewaterhouseCoopers*

Bob MorrisPricewaterhouseCoopers LLP, US+1 202 414 [email protected]

Susan SymonsPricewaterhouseCoopers LLP, UK+44 20 7804 [email protected]

Neville HowlettPricewaterhouseCoopers LLP, UK+44 20 7212 [email protected]

For further information or to discuss any of the findings in this report please contact:

* In this publication, the terms PricewaterhouseCoopers and PwC refer to the network of member firms ofPricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity

World Bank Group

Penelope Brook+1 202 473 [email protected]

Sylvia Solf+1 202 458 [email protected]

Caroline Otonglo+1 202 473 [email protected]

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Paying Taxes 2010 3

Foreword

Penelope Brook

Director of the Global Indicators and Analysis Group

World Bank Group

Susan Symons

Tax partner

PricewaterhouseCoopers LLP, UK

This is the fourth Paying Taxes publication, which isbased on data collected in connection with the payingtaxes indicator from the World Bank Groups DoingBusiness project. The project assesses the regulatoryclimate which impacts a domestic, small to mediumsized business during its natural life cycle, and PayingTaxes is part of this overall structure. The study is uniquein that it measures the ease of paying taxes across

183 economies, by assessing the time required forcompanies to prepare and file tax returns and pay taxes,and also the companys total tax liability as a percentageof commercial profits. Paying Taxes provides a wealthof data which can help governments benchmark theirtax systems on a like-for-like basis. The results providea platform for government and business to engage inconstructive discussion on tax reform.

The Paying Taxes study, and the way in which the resultsare used, has developed since it was first introducedto the Doing Business project. In the publication, wehave sought to draw themes from the results, andto illustrate the findings with analysis from specificeconomies and regional groupings. Additional questions

are also now asked in the study, to put the indicatorresults into a broader context and provide furtherinsight into tax systems from the view of business.This publication, as well as the full set of results andunderlying data, is available on the World Bank Groupand PricewaterhouseCoopers websites, for governmentsand other users to explore.

This year, the study has been conducted againstthe backdrop of a global recession that has meantfalling tax revenues around the world, and the needfor governments to make difficult tax policy choices.The challenge is how to ensure sufficient publicrevenues for the future, while at the same timeincentivising investment and economic growth.

With reforms identified by the study in 104 economiesover a five year period, it is clear that tax reform is ongovernments agendas. 45 of these reforms, relevantfor Doing Business, have been undertaken in the pastyear, including broadening the tax base, lowering taxburdens and making compliance easier. This suggeststhat tax reform is an important part of the way inwhich governments are dealing with the economicdownturn. These reforms are discussed in more detailin the publication.

Governments continue to demonstrate their engagementon tax reform. This is evidenced in the publication witharticles from various economies, which give insightsinto how the Paying Taxes data has been used, andprovide details of the reforms that have been and arebeing implemented.

We welcome feedback and encourage users of thisreport to provide additional input and comments, so thatthe value of the data can be even further enhanced forthe future.


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Objectives and key themesand findings from the

Doing Business PayingTaxes study

This is the fifth year that the Paying Taxes indicator has been included inthe World Bank Groups Doing Business project. The indicator measures theease of paying taxes for a small to medium sized domestic company, in 183economies around the world two more than in last years publication.

The Paying Taxes indicator is unique in that it measures the worlds taxsystems from the point of view of a domestic business, complying with thedifferent tax laws and regulations in each economy.

The objectives of the indicator are:

geographical groupings, which can provide an opportunity to learn from

identify good practices and possible reforms.

The indicator covers both the cost of taxes, which are borne by the casestudy company, and the administrative burden of tax compliance for thecompany. Both are important from the business point of view and aremeasured using three sub-indicators:

The results for each sub-indicator, split by type of tax, and the full set ofrankings are included in Appendix 1. Further details are also availableon the World Bank Groups Doing Business project (Doing Business) andPricewaterhouseCoopers websites. The full methodology for the case studycompany and the indicators is explained in Appendix 2.

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Paying Taxes 2010 7

Objectives and key themes and findings from theDoing Business Paying Taxes study

Chapter 1 of this study sets out the latest findings andanalysis on the Paying Taxes indicator from the WorldBank Groups Doing Business report. This includes adiscussion of reforms around the world, and of optionsfor moving towards smart regulation.

Chapter 2 provides a further analysis byPricewaterhouseCoopers of the sub-indicators,which includes a focus on various geographical andeconomic groupings. This is followed by initial findingsfrom additional questions on tax systems and taxadministration. These questions are not incorporatedin the Paying Taxes results, but have been developedin response to feedback on the study, and to provideadditional insights on tax systems.

The report also includes a number of commentariesfrom PricewaterhouseCoopers around the world whichillustrate how this data is being used in practice to informand stimulate discussion with governments. Thesecommentaries also refer to some of the reforms that havebeen and are being implemented to address the issuesarising in such dialogues.

The World Bank Group engages in consultations onthe Doing Business indicators with a broad rangeof stakeholders. This years report benefitted fromtheir input. Consultations are presently ongoing onthe design of the Paying Taxes indicator. The PayingTaxes team continually welcomes input into the studyin order to ensure the relevance of the data collected,and to further enhance its usefulness for both businessand government.


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Some of the key themes and findings from Paying Taxes2010 include:

which business has to comply. When considering theburden of taxes on business, it is important to lookat all the taxes that companies pay. In a recession,company profits, and therefore corporate income taxpayments, may fall, but the cost of taxes for businessmay still increase where other taxes paid are notlinked to profitability.

governments is how to safeguard the public revenuesneeded for provision of public services and socialsafety nets, while at the same time, encouraginginvestment, growth and job creation.

necessarily a model for other economies. Businessunderstands the need to pay taxes, and that levyingtaxes is not an easy task for government. Governmenthas a responsibility to use taxes to fulfil economicand social objectives, and improve infrastructureand the quality of life for citizens which in turn,benefits business.

Doing Business report hasrecorded 171 reforms affecting the Paying Taxesindicator in 104 economies around the world. Overthe past year, governments have stayed on coursewith reform programmes. 45 economies have reducedthe tax burden on small to medium sized businesses,or made it easier to pay taxes, with reforms made inthe year to 1 June 2009 this is 25% more than inthe previous year. 20 economies reduced profit taxrates, the most popular reform, closely followed by

18 economies which focused on making the filing andpayment of taxes easier.

reforms on the Paying Taxes indicator in this yearsDoing BusinessCentral Asia is the region with the largest number ofreforms for the third year in a row.

burden on business in terms of cost and time, and sohas the potential to be a disincentive to investmentand encourage informality. The Paying Taxes studyshows that tax reform has continued to remain highon governments agendas, generally with the aim ofreducing the regulatory burden of tax complianceon business.

labour, consumption, and property), can ease the taxcompliance burden for companies. The time neededto comply can increase where there are multiple taxes.Filing and payment of labour taxes and consumptiontaxes add considerably to the time to comply. Therequirement to keep separate books for tax, otherthan those required for accounting purposes, can alsoadd to the time taken to comply.

law and making it easier for firms to comply withregulations. The ability to pay and file electronicallyhas a significant positive impact on the number ofbe well-established in developed economies andit is increasingly being implemented in developingeconomies. This requires the buy-in and trust oftaxpayers with regards to the tax payment system, aswell as the availability of technology.

included in this years survey, identified the way inwhich tax audits are dealt with and the approachof the tax authorities in dealing with businessesas the elements of the tax system in most needof improvement.


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Objectives and key themes and findings from theDoing Business Paying Taxes study


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11Paying Taxes 2010

Paying Taxes:Findings of the World Bank Groups Doing Business 2010

In the past, tax reforms were often part of governmentresponses to financial or economic crises. During theAsian financial crisis of the late 1990s Singapore wasone economy that undertook elaborate tax reforms tocombat the economic downturn. It lowered businesscosts through a series of tax cuts, rebates andexemptions introduced over the course of the crisis. Italso reduced the number of payments by removing thestamp duty on almost all documents4. Today Singaporeis still one of the easiest places in which to pay taxes asmeasured by Doing Business.

The size of the tax burden on businesses mattersfor investment and growth. Where taxes are highand corresponding gains seem low, the incentive forbusinesses to opt out of the formal sector increases.A recent study shows that higher tax rates areassociated with lower private investment and fewerformal businesses. A 10 percentage point increase inthe effective corporate tax rate is associated with areduction in the ratio of investment to GDP of up to twopercentage points and a decrease in the business entryrate of about one percentage point5. Other researchsuggests that a one percentage point increase in thestatutory corporate tax rate would reduce the local profitsof existing investments by 1.31 percentage points onaverage6 and lead to an 18 percentage point increase inaverage debt-to-asset ratios (part of the reason for thelower reported profits)7. A one percentage point increasein effective corporate tax rates reduces the likelihoodof establishing a subsidiary in an economy by 2.9percentage points8.

Besides the taxes paid, there are costs of complying withtax laws and of running the revenue authority. Worldwideon average, a standard small to medium sized businessstill spends three working days a month complying with

tax obligations as measured by Doing Business. Wheretax compliance imposes heavy burdens of cost and time,it can create a disincentive to investment and encourageinformality9. Particularly in developing economies,large informal sectors contribute to the creation ofan uneven playing field for formal small and medium

Figure 1.1Where is it easy to pay taxes and where not?

Easiest Rank Most difficult Rank

Maldives 1 Jamaica 174

2 Mauritania 175

3 Gambia, The 176

4 Bolivia 177Singapore 5 Uzbekistan 178

Ireland 6 179

Saudi Arabia 7 180

Oman 8 Ukraine 181

New Zealand 9 182

Kiribati 10 Belarus 183

payments, time and total tax rate.

Source: Doing Business database.

Figure 1.2104 economies reformed in paying taxes in 2004-08

Average percentage change, 2004-08

Note: The percentage increase in payments in low income economies is drivenby one major reform in one economy that increased payments by 60% in 2006.Without this outlier the average percentage decrease would be 1.09%.


Income group

Upper middle

Lower middle

Low

Payments Time to comply Total tax rate

2004

2008 -10.3

-4.3

-7.7

-17.8

-5.9

-11.7

-12.8

-9.3

-15.9

1.7

-4.6

-10.6

4 Chew (2009).5 Djankov and others (forthcoming).


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sized enterprises, squeezed between smaller informalcompetitors and larger competitors whose greaterresources can help win a more effective audiencewith government and thus greater tax concessions.

Worldwide, economies that make paying taxes easytend to focus on lower tax rates accompanied by widertax bases, simpler and more efficient tax administrationand one tax per tax base. They also tend to provideelectronic filing and payment systems, which reducethe tax burden for firms while lightening theiradministrative requirements.

Who reformed in 2008/09?

Between 2 June 2008 and 1 June 2009, 45 economiesmade it easier for businesses to pay taxes almost25% more than in the previous year10this period both lowered the tax burden on businessesand simplified tax compliance processes. 20 economiesreduced corporate income tax rates, while nine reducedlabour tax rates (Figure 1.4). A second category ofreforms focused on making it easier to file tax returnsand pay taxes. 18 economies, more than in anyprevious year, introduced electronic filing and paymentsystems. Seven reduced the number of taxes paidby consolidating or eliminating taxes. 12 adoptednew tax laws or substantially revised existing onesto simplify procedures and modernise tax regimes:Leone, Sudan, Timor-Leste, Tonga, Uzbekistanand Vietnam.

Timor-Leste was the top reformer in 2008/09. A newtax law came into force in July 2008, transforming

the tax regime for businesses. It cut the profit tax ratefrom 30% to 10%, allowed all depreciable assets to befully written off in the year of purchase and abolishedthe alternative minimum tax and the withholding taxon interest (Figure 1.5). Corporate income tax is nowpaid in quarterly rather than monthly instalments when

Number of hours peryear to prepare, file

returns and pay taxes

Firm tax liability as %of profits before all

taxes borne

Number of tax payments per year

Figure 1.3Paying taxes: tax compliance for a localmanufacturing company

33.3%

Total tax rate

33.3%

Payments

33.3%

Time

Figure 1.4in 2008/09

tax rates

Algeria, Bangladesh, Benin, BruneiDarussalam, Cape Verde, Fiji, Iceland, Israel,Spain, St. Vincent and the Grenadines,Sudan, Timor-Leste, Togo, Vietnam

Simplified processof paying taxes

Angola, Belarus, Belgium, Colombia, CzechMacedonia, Mexico, Peru, Poland, SierraLeone, Taiwan (China), Tunisia

Sierra Leone, Sudan, Timor-Leste, Tonga,Uzbekistan, Vietnam

tax or mandatorycontribution rates

Montenegro, Poland

Africa, Sudan, Timor-Leste, Vietnam


10 This years report records all reforms with an impact on the paying taxes indicatorsbetween June 2008 and May 2009. Because the case study underlying the paying taxesindicators refers to the financial year ending December 31, 2008, reforms implementedbetween January 2009 and May 2009 are recorded in this years report, but the impact willbe reflected in the data in next years report.


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turnover is less than $1 million, with simple rules for itscalculation. The time required for paying taxes fell by 364hours a year.

Mexico was the runner-up reformer thanks to itsintroduction of electronic filing systems for payroll taxes,property taxes and social security. This reduced thenumber of payments in a year by 21.

Asia had the largest number of reforms, with 10economies reforming. Kazakhstan cut its corporateincome tax rate by 10 percentage points. Kosovo,Macedonia, Moldova, Montenegro and Poland reducedthe rates for labour taxes and mandatory contributionsevident. Traditionally, employers have borne a significantshare of the tax burden through labour taxes. This isgradually reversing, with the region accounting for 55%of labour tax rate reforms in the past two years.

Figure 1.5Major cuts in corporate income tax rates in 2008/09

Region Reduction in corporate income tax rate (%)

Brunei Darussalam from 25.5 to 23.5Fiji from 31 to 29Philippines from 35 to 30Timor-Leste from 30 to 10

Vietnam from 28 to 25

Central Asia

Kazakhstan from 30 to 20Kosovo from 20 to 10Montenegro from 15 to 9

Sub-Saharan Africa

Benin from 38 to 30Cape Verde from 30 to 25Sudan from 30 to 15Togo from 37 to 30

Iceland from 18 to 15Spain from 32.5 to 30

Africa

Algeria from 25 to 19Israel from 29 to 27, and further to 26a

Caribbean

St. Vincent and the Grenadines from 37.5 to35, and further to 32.5a

South Asia Bangladesh from 40 to 37.5

a. The statutory rate changed twice over the period 2008 to 2009.



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region. In Belarus the online tax portal has becomeMacedonia electronic filing is now mandatory for alltaxes. In the past four years changes such as thesehave reduced the average number of tax payments in theregion by four and the time for tax compliance by almostsix days. Other reforms also simplified tax compliance.eliminated some taxes as well.

Sub-Saharan Africa had the second largest number of

reforms, accounting for almost a fifth of the total. This istimely in a region where businesses still face the highestaverage tax burden in the world (Figure 1.6). On average,African firms must pay 68% of profits in taxes andmandatory contributions and spend 38 days a yearcomplying with 37 tax payments and filings.

Benin, Cape Verde, Sudan and Togo reduced thecorporate income tax rate by 8.75 percentage pointson average. Benin also reduced its payroll tax, by fourpercentage points. Sudan enacted a new tax code,reduced the capital gains tax by five percentage pointsand abolished an additional tax on labour. South Africaabolished the stamp duty, and Cameroon exempted newcompanies from the business license tax for two years.Angola and Kenya introduced electronic systems, makingit easier to pay taxes. Sierra Leone eased tax complianceand increased transparency through administrativereforms at the tax authority and publication of aconsolidated income tax act, now available online.

Philippines and Vietnam joined Timor-Leste in reducingcorporate income tax rates. Vietnam cut the rate to 25%and also abolished the surtax on income from the transfera single tax return and improved the lodgement processand staffing at the tax offices. Taiwan (China) extendedelectronic filing and payment to the value added tax.In Tonga, Timor-Leste and Vietnam new income tax lawscame into effect.

lowering corporate income tax rates and implementingonline systems continued. Jordan simplified tax formsand introduced an online filing and payment system.Lebanon also introduced electronic payment. In Tunisiaas of 2009, all companies with a turnover equivalent to atleast $1.5 million must use the tldeclaration online taxsystem. Algeria and Israel reduced corporate income taxrates. Oman introduced a new income tax law. Djiboutireplaced its sales tax with a new value added tax, as did

Finland and Spain made it even easier to file and paytaxes electronically. Iceland, Korea and Spain reducedmandated electronic filing for all taxes, reducing

Figure 1.6Overall tax burden still highest in Sub-Saharan Africa


70%

60%

50%

30%

10%

40%

20%

0%

Other taxes

Labour tax

Profit tax

NorthAfrica

income

Pacific

CentralAsia

SouthAsia

Caribbean

Sub-Saharan

Africa


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compliance time by 317 hours, and lowered the rate forsocial security contributions from 8% to 6.5%.

In Latin America and the Caribbean most majorreforms enhanced electronic systems. This is awelcome development, since the regions businessesspend the greatest average time on tax payment andfilings (Figure 1.7). Aside from Mexicos reforms, Perumade it easier to pay value added tax by providingtaxpayers with free software. Colombias tax authorityupgraded its electronic payment system (MUISCA)to allow electronic filing and payment of corporateincome tax and value added tax. Guatemala introducedregulations mandating use of electronic systems for taxpayments and filings, reducing the number of paymentsby 14. St. Vincent and the Grenadines lowered thecorporate income tax rate from 37.5% to 35% in 2008and to 32.5% in 2009.

In South Asia only Bangladesh reformed, reducing thecorporate income tax rate from 40% to 37.5%.

Only one economy increased the corporate incometax rate: Lithuania, from 18% to 20% in 2009.tax from 13% to 15%. Two economies increased thelabour tax and mandatory contribution rates: St. Vincentand the Grenadines by one percentage point and Tunisiaof three labour taxes.

Three economies introduced new taxes. BruneiDarussalam introduced a 12% building tax on commercialanti-drug tax come into effect in 2008.

Towards smart regulation

In the past five years, Doing Business has recorded171 reforms in paying taxes in 104 economies aroundthe world reforms aimed at making tax complianceeasier and the tax burden lighter for small and mediumimportance of tax reform in enhancing economic growthand investment, increasing competitiveness, combatingunemployment and achieving good governance. Inreforming their tax systems they have sought to eliminatevarious exemptions, broaden the tax base and modernisetheir tax systems.

Easing compliance through broad-based reforms

Many tax reforms are aimed at simplifying the tax law

and making it easier for firms to comply with regulations.A bold step in this direction involves eliminating taxexemptions, tax holidays and other special treatmentfor different types of businesses, to achieve equalcan be difficult, because they are often used as tax

Figure 1.7


194

Time (hours per year)

North Africa

Pacific

South Asia

income

Latin America

Sub-SaharanAfrica

#

204

227

285

306

336

385

13

23

25

31

38

46

33

Number of taxpayments


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Turkey show that it takes political will and buy-in fromstakeholders to succeed.

Jamaica also has a lesson to share: during its 1986 flattax reform it used arguments of fairness to overcomeopposition to reformand eliminated 17 types ofcredits and 44 allowances11all tax exemptions and introduced a flat tax of 20% oncorporate income, down from 32% or 40%, as well aselectronic filing and self-assessment12. Sales tax revenuerose by 46%, and corporate tax collections by 24.7%.Mauritius shifted from a tiered rate to a single rate witha broader tax base. It also streamlined tax administrationand made it electronic. The following year corporate taxcollection exceeded estimates by 13.5%13.

Georgias tax reform of 2008 was multi-faceted, targetingdifferent taxes simultaneously. It lowered the corporatetax rate, abolished the social tax and introduced onlinefiling, reducing both the number of tax payments and theenforcement less burdensome. Surveys of businessesshowed that the average number of visits or requiredmeetings with tax officials fell from eight in 2005 to only0.4 in 200814.

Making systems electronic

Almost 70 of the 183 economies covered by DoingBusiness offer some form of electronic tax filing andpayment options to businesses (Figure 1.8). In 55economies the electronic systems are used by asignificant share of businesses. Not surprisingly, amongto file and pay taxes electronically. But the trend is also

picking up among developing economies. In the past fiveyears, 31 have introduced fairly comprehensive electronicsystems. Another 13 are introducing electronic filing orpayment or have just done so and are encouraging wideruse by taxpayers.

Many economies are eager to make use of technologyto ease the paying of taxes and with good reason.If properly implemented, and adopted by businesses,electronic tax systems speed up processing, improvedata collection and reduce error rates. In the UnitedStates in 2009, the error rate was less than 1% forelectronically prepared and filed returns but about 20%for paper returns15. But taxpayers can be slow to takeup the new technology. In many developing economiesaccess to the internet remains an obstacle. But adoptionof new systems can be slow for reasons that cutacross economies at all levels of development. Most

critically, taxpayers need to trust the payment system.This requires high-quality security systems to protectdata. Also required are laws addressing data protectionand privacy concerns and allowing electronic signatures.including through the internet. Another way is through

12 World Bank (2006).13 Cuttaree and Trumbic (forthcoming).

uk.reuters.com/article/idUKN3032076020090430

Figure 1.8Going electronic more economies put taxsystems onlineShare of economies with online tax filing and payment %


New in 2008 (%)

As of 200790%

100%

80%

70%

60%

50%

20%

40%

10%

30%

0%

Sub-Saharan

Africa

SouthAsia

LatinAmerica

NorthAfrica

income

4.36.5 12.5

15.8

29.2

9.4

28.1

14.8

37

96.3


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Figure 1.9Who makes paying taxes easy and who does not and where is the total tax rate highest and lowest?

Payments (number per year)

Fewest Most

Maldives 1 Cte dIvoire 66

1 Serbia 66

Sweden 2 71

4 Jamaica 72

Norway 4 75

Singapore 5 Montenegro 89

Mexico 6 Uzbekistan 106

Timor-Leste 6 Belarus 107

Kiribati 7 113

Mauritius 7 Ukraine 147

Time (hours per year)

Fastest Slowest

Maldives 0 Mauritania 696

12 Ukraine 736

Bahrain 36 864

36 Belarus 900

Bahamas, The 58 Nigeria 938

Luxembourg 59 Armenia 958

Oman 62 Vietnam 1,050Switzerland 63 Bolivia 1,080

New Zealand 70 Cameroon 1,400

75 Brazil 2,600

Total tax rate (% of profit)

Lowest Highest

Timor-Leste 0.2 Tajikistan 85.9

Vanuatu 8.4 Mauritania 86.1

Maldives 9.1 Uzbekistan 94.9

Namibia 9.6 Belarus 99.7

11.3 Argentina 108.1

14.1 203.8

Saudi Arabia 14.5 Sierra Leone 235.6

Bahrain 15.0 Burundi 278.6

Georgia 15.3 Gambia, The 292.4

Kuwait 15.5 322.0


automatic bank transfers, popular across all regions andincome levels, mainly because taxpayers perceive it asless prone to security risks.

In Lebanon taxpayers can make electronic paymentsat any post office. In Tunisia the government initiallyintroduced an intermediate option allowing online filersto print a receipt number and make their payment inany tax office. The past years reform consolidatedelectronic payment and filing through the tldeclarationonline system.

Another issue is access to the system. To encourageuse of new technology, Peru and South Africa providefree software that makes the filing process automatic16.France eased access while maintaining security byscrapping its electronic verification software. Taxpayerscan now verify their identity with the numbers on theirannual declaration and their notice of assessment. InChile taxpayers can use their universal identificationnumber and a password.

Faster refunds and processing times for onlinetransactions are key incentives to encourage use of newtechnology. Australia, Ireland, Taiwan (China), the UnitedKingdom and the United States offer such inducements.South Africa waived late penalties for online filers in 2007.France introduced tax credits for individual taxpayersfiling their returns electronically, though in the future thiswill apply only to first-time electronic filers. Sharing gainsfrom administrative efficiency is a way to encouragetaxpayers to use the system.

16 Wongtrakool (1998).


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A PricewaterhouseCooperscommentary on the results

Chapter

2 IntroductionThe current environmentThe economic downturn experienced over the past 12 to 18 months hasbeen particularly severe. It has become more than just a matter of survivingis an expectation that the economies emerging from the downturn might bedifferent to those which went into it, and that governments are likely to bemuch more active players in the private sector. Stabilising financial systemsin the wake of the credit crunch, managing publicly owned stakes in financialservices companies, and coordinating better internationally on global issuessuch as climate change and energy infrastructure, all mean significant changefor economies around the world.

The economic recession has caused great uncertainty in the global marketsresulting in a perceived need for significant regulatory reform, includingthe reform of tax systems. This will affect the cost of doing business.For developing countries, there is the added concern that as the developedworld seeks to protect its economies and maintain competitiveness, there willbe an adverse impact on world trade and international investment, and so ontheir ability to economically prosper and grow.

Levying taxes is not easy, and the present economic circumstances havemade it even more difficult. Governments have to use the tax systemto provide and manage public finances to fund their necessary publicexpenditure programmes, including those required to meet social objectives,and also to promote business investment and economic growth. What isimportant is how the tax system fulfils these objectives. The tax systemcontribute to improving the quality of life for citizens, and tax administrationshould be as professional and efficient as possible. Last years report set outthe possible hallmarks of a good tax system and these are summarised againon page 23.

Tax reform remains firmly on the government agenda. Through its DoingBusiness indicators, the World Bank Group has recorded tax reforms in

104 economies around the world during the five years of the Paying Taxesstudy. The recession is not likely to lessen the pace of these changes. Thedownturn has reduced corporate profitability and slowed investment andtransaction activity, thus reducing government tax revenues from business.The challenge for government is not only to rebuild revenues, but also tohelp businesses survive through a difficult time and position themselvesbest for recovery, while also exploring possibilities for easing complexityand administrative burden.

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A PricewaterhouseCoopers commentary on the results

About the Paying Taxes study

The Paying Taxes study is part of the World Bank GroupsDoing Business project (see Appendix 4). Doing Businessprovides a quantitative measure of the regulationsapplied to domestic, small and medium sized enterprises,from 10 business aspects, including Paying Taxes.The Paying Taxes indicator looks at the tax systems in183 economies, to assess how they apply to and affecta standard case study company (TaxpayerCo), facilitatingthe comparison of the worlds tax systems using aconsistent set of assumptions. The objective is to ensurethat the results can be measured on the same basis foreach economy, to enable comparisons to be made. Thestudy provides quantitative data to inform and stimulatediscussion, enabling governments to benchmark their taxsystems against others, and to identify possible priorityareas for reform.

It should be noted that the process to generate thePaying Taxes results is an intensive and rigorous one.in a standard format which is sense-checked andvalidated by the World Bank Group team. After fiveyears of the study, the data is well established. Anyamendments must be evidenced by changes in the law oradministration and discussed with all contributors in theeconomy. The annual data gathering process for PayingTaxes is summarised in Figure 2.1.

The use of a case study company with a standard factpattern does of course bring limitations. The size ofthe company (60 employees) may be considered largein some countries, and modest in others, potentiallygenerating issues around the availability of specialregimes for small and medium sized enterprises. Thelocation is in the most populous city, which tends to be

expensive from a tax perspective in some economies.The type of business may have an impact, as additionaltaxes or incentives are often available for specifiedactivities. Also, the fact that the indicator addresses onlycertain aspects of tax administration and not others (e.g.the approach of the tax authority), could be considered

limiting. Nevertheless, this study is unique in that itcovers so many economies, facilitating benchmarkingof those that participate, and also because it providesa view of the worlds tax regimes from the point of viewof the company. The fact pattern chosen is there tofacilitate the collection of data, which can be comparedacross a large number of economies. There is a wealthof data available to the users of the study, with theresults covering three sub-indicators relating to Payingtime to comply), for three main types of tax and in 183economies. All of this data is available on the World BankGroup and PwC websites17.

As mentioned above, the study measures threeseparate aspects of paying taxes. Two of these relateto the tax compliance burden and one to the cost of thetax burden. All three are equally weighted to arrive at anoverall ranking. Therefore, the results are weighted tothe tax compliance burden and this is one reason whyit is important to look at each sub-indicator separately.Another reason is that each sub-indicator measures adifferent aspect of the tax system, generating importantfindings for each aspect that are not necessarily revealeddoes not necessarily translate into a low complianceburden. Nigeria is an economy where the data showsnumber of hours required for compliance is relatively highat 938, giving a low ranking of 178 for the time to comply.An example at the other end of the scale is Swedenbut where it is relatively easy to comply with the systemrequiring only 122 hours which gives a high ranking of34 for the time to comply. Sweden is an example of aneconomy with an efficient tax system, and where hightaxes flow through to give high value social services and

a better standard of living.It is also important to appreciate how and why economiesmay move up and down in the rankings. The ranking foran economy may fall, despite there being no change inits underlying data. This is generally due to the fact that

17 www.doingbusiness.orgwww.pwc.com/payingtaxes


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Feedback of final results to government representatives.

Figure 2.1Flowchart to summarise the annual Paying Taxes process

Inputfromtheusersofthepublicationandotherint

erestedpartiesincludinginternational

organisationsandinstitutions

Dialoguewithgovernmentsontheresultsforindividualeconomiesan

dregions

April to July

September

November

February

teams. Improvements to indicator and non-indicator questions implemented.

Clearance of revised questionnaire by World Bank Group management team.

Distribution of the questionnaire by the World Bank Group team to thecontributors in each economy, including PwC.

Completion of the questionnaire by contributors with a facility to raise querieswith the World Bank Group.

Identification of issues arising from the data, and investigation of these with

the contributors. (Typically, there are four rounds of interaction betweencontributors and the World Bank Group team).

Any suggested changes to the indicators are investigated further with thecontributors and then verified with other third party contributors. The change isonly made if it is substantiated. Finalisation and input of the data into the WorldBank Group model. Calculation and finalisation of the indicators and rankings.

Clearance of these with the World Bank Group management.

Drafting of the World Bank Group Paying Taxes chapter for inclusion in theDoing Business report and, clearance with World Bank Group management.

Launch of the Doing Business report and data on the website.

Independent PwC analysis of indicator and non-indicator data to determine aPwC perspective. Focus on geographical and economic groupings.

Drafting of the Paying Taxes report.

Feedback of the final results to the contributors.


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21Paying Taxes 2010


there have been reforms in other economies. In addition,the distribution of the results is also important. For eachof the sub-indicators there is a clustering of results,with a large number of economies falling within a certainbanding. For economies within this banding, a smallimprovement in their results can result in a significantmovement up the rankings. For example, this yearits ranking for this indicator by 13 places. For countriesin the more sparsely populated parts of the distribution,significant reform and large improvements may see onlyreduced its hours to comply substantially by 317 hoursfrom 930 to 613, but this has only improved the rankingfor this sub-indicator by three places, up from 174 to 171.

governments, business and other stakeholders aroundthe world, stimulating many useful discussions on taxsystems and reform.


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Section 1

The Paying Taxes indicators

Section 1 of this chapter is a commentary on some ofthe key issues that the Paying Taxes data highlightsthis year. The findings reinforce the messages that havebeen addressed in previous editions of Paying Taxes,underlining their relevance. A number of new themesare also identified that can be drawn from comparingthe data with other indices, such as the United Nations

It is emphasised that economies at the top of the globalrankings are not necessarily the best examples of whatmight be considered to be an ideal tax system. WhileSingapore and Ireland) which are worth considering ascountries which have followed a policy of low corporatetaxes to stimulate business investment, there are alsofive oil-rich states and two small island states whichhave economic environments which are not the norm.Paying Taxes results to benchmark their tax systemsagainst neighbouring countries, or those that theyconsider economic peers. For example, the NetherlandsChile might benchmark against its neighbours, includingArgentina, Brazil, Peru and Bolivia. This section thereforeexplores a number of different regional and economicgroupings, to show how the data can be presented inways which may be considered most relevant.

Section 2

Further insights on tax administration

The Paying Taxes results do not measure all aspects oftax administration. Over the last two years, a list of furtherquestions has been developed to collect additional datato address other relevant issues. Useful input has beenreceived from business, governments and internationalorganisations on these questions. These additionalquestions have been included in this years questionnaire,and some of the results are analysed and discussed inSection 2 of this chapter.

The answers to these questions are not used in thecalculation of the sub-indicators but, they do providesome useful further insights on the impact of tax systems.The questions are grouped around:

A list of the additional questions is included inAppendix 3. Several of the additional non-indicatorquestions invite the contributor to express a view. Itis acknowledged that the results to these questionsrepresent only opinion, and that opinions on these pointsinterested parties that these additional aspects of the taxsystems are important. Input into how this aspect of the

study can continue to be developed is welcomed.

What this chapter covers

22


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What makes a good tax system?Some possible hallmarks

23Paying Taxes 2010

Clear purpose

2 Balances the budget (over a period of time).

3 Meets social objectives.

4 Improves human development.

Strategic

5 Stable and consistent, enabling long-termbusiness investment.

6 A fair value for natural resources.

is agreed upon.

Coherent and efficient

9 Minimises the administrative burden.

10 Clear and understandable rules.

11 Consistent with wider (non tax) law andinternational principles.

12 Consultation on policy and administration.

Fair and transparent

13 Based on law rather than the practice oftax authorities.

14 Consistently enforced.

15 Independent and effective route for resolving disputeswith the tax authority.

16 Mutual trust and respect between taxpayers and thetax authority.

Note: A PricewaterhouseCoopers discussion of the possible hallmarks of a good tax system.


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24

The study has again involved gathering data on the taxaffairs of a case study company from contributors ineach of the economies. This year, the study covered183 economies (two more than last year). Contributorsreview the financial statements and a list of transactionsof a standard small to medium sized case studycompany, and generate information to calculate resultsfor three sub-indicators related to the ease of payingtaxes. These are:

These are equally weighted to produce an overallranking for each economy, for the ease of paying taxes.These rankings are included in Appendix 1 of this report.The rankings of each of the individual sub-indicators arealso disclosed. It is important to look at each of theseseparately, as they measure different aspects of thetax system.

The total tax cost indicator calculates a Total TaxContribution methodology. This is a measure of the costof all taxes borne by the company when paid, includinglabour taxes and contributions borne by the employer,property taxes, indirect taxes, and environmental taxes,as well as corporate income tax. Taxes collected onbehalf of government, but not borne by the company,consumption taxes (including sales taxes and valueadded tax18), and taxes and contributions deducted fromemployees salaries. It is important to note, however, thatthese taxes collected generate administrative obligationsand therefore, the time to comply and payments

indicators do collect and reflect data on these taxes.The time to comply indicator measures the time neededto prepare, file and pay (or withhold) three major types

added (or sales) tax, and labour taxes (including payrolltaxes and social security contributions).

The number of tax payments indicator reflects the totalnumber of taxes and contributions paid by the casestudy company during the course of a year, reflecting themethod of payment, the frequency of payment and thenumber of agencies involved.

The detailed methodology and assumptions used are setout in Appendix 2.

Overall results

Figure 2.2 sets out the global average result for eachof the indicators, analysed by each type of tax. It alsoincludes the range of results. TaxpayerCo has a globalwith its tax affairs, and makes 31 tax payments. Furtheranalysis of regional and individual economy results is setout below.

Section 1The Paying Taxes indicators

Chapter

2

Figure 2.2The global average for each indicator

TTR % Hours Payments

Profit taxes 18.2 74 3.7

Labour taxes andcontributions

16.1 105 11.9

Other/ Consumption 14.0 107 15.4

Total Tax 48.3 286 31.0

Range 0.2 322 0 2,600 1 147

Note: The table shows the average result for all economies in the study.


18 In general in this report VAT is used as a shorthand to refer to the similar consumptiontaxes such as value added tax and goods and services tax (GST).


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25Paying Taxes 2010


Corporate income tax is only part of the burden

of taxes

A consistent message of the Paying Taxes study eachyear, is that corporate income tax19 is only part of thetax burden on business. The data from this years studyshows the same position. Figure 2.3 shows that, onaverage, for all 183 economies in the study, corporateincome tax accounts for 12% of the tax payments madeby the case study company (13% in 2009), for 26%of the compliance time (26% in 2009), and for 38% ofimportant for governments to take into account all of thetaxes that companies pay.

The number of taxes paid by business

The message that corporate income tax is only one ofmany taxes is illustrated by looking at the number oftaxes that the case study company is required to complywith (both those it collects on behalf of government andthose which are borne by the company). The global

average number of taxes is 9.5 (see Figure 2.4) althoughthis varies significantly around the world.

Figure 2.5 shows the average total number of taxesfor our case study company, for a number of differentregional groupings. The average varies from just overto 11.4 for those in the G20. The average number of profittaxes is between one and 1.5 for all of the groupingsshown here. This pattern is consistent with that seen inprevious years.

Profit taxes include corporate income tax and other taxescalculated by reference to profit, such as the trade tax inincome tax remains a very common tax. Only eighteconomies out of the 183 in the study do not have acorporate income tax within their tax regime.

The impact of the recession on the tax costfor business

The recession has shown corporate income taxto be a volatile tax. As profits have fallen, so havecorporate income tax receipts. In the UK, for example,government receipts for corporation tax are estimatedto have fallen by 7.5% between 2008 and 2009,and are projected to fall by a further 20% between2009 and 201020. For business, however, the totaltax cost has increased when compared with profits,as the other taxes which are paid but not calculatedby reference to profits, have not fallen to the sameextent. This impact of the recession is not reflected inthe results for TaxpayerCo in the Paying Taxes studythis increased cost can be seen in the results of theannual study which PwC carries out in the UK forcompanies), using the PwC Total Tax Contributionframework. In the 2007 study21a company was 36.2% (very close to the UK resultfor TaxpayerCo in Paying Taxes). In the 2008 study22,study is still under analysis, but the initial indicationsagain increased.

Figure 2.3

Corporate income tax is only part of the burden

Note: The chart shows the average result for all economies in the study.


Profit taxes

Labour taxes

Other taxes

Payments Time

50% 37% 29%

38%

12%

37%33%

26%

38%

Figure 2.4Global average number of taxes levied on our casestudy company

Note: The chart shows the average result for all economies in the study.


Global average number of taxes = 9.5

Property Profit

Labour

Consumption

Other

1 1.3

2.0

1

4.2

19 The % for Corporate Income Tax (CIT) also includes other taxes calculated by reference todo not have CIT.

21 Total Tax Contribution PricewaterhouseCoopers LLP (UK) 2007 survey for The

22 Total Tax Contribution PricewaterhouseCoopers LLP (UK) 2008 survey for The


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27Paying Taxes 2010


Sales taxes

Sales taxes are a good example of the issues that haveto be considered in making the distinction betweentaxes which are borne by TaxpayerCo, and thereforeTaxpayerCo, and included only in the two complianceindicators.

Below are four types of sales taxes that have differenttreatments for the data, and therefore impact theresults in different ways:

1 Sales taxes that are charged only at the final pointof sale to the consumer, are not normally taxes

borne by a company, as they are suffered only bythe final consumer. This type of sales tax is treatedas a tax collected.

2 Value added tax is also normally a tax collected.It is a tax which is separately identified in the priceseller can be set off by the business against thethese attributes point to VAT being a tax collected.

The exception to this is where VAT incurred isirrecoverable, in which case that component willconstitute a tax borne. The case study company

does not generally have irrecoverable VAT, althoughthere are some exceptions.

3 Cascade style sales taxes, seen for example insome African economies, add additional costs toeach consumer, so that an element of them is borneby each company in a chain of supply. These taxesare a charge to the profit and loss statement, andtherefore affect the profitability of a company, whileVAT and sales tax on final products generally do not.For the purposes of the data, these taxes are taxesborne to the extent that they are taxes incurred onpurchases made by the company.

4 Turnover taxes are a tax borne, as they aregenerally calculated as a percentage of acompanys turnover, and paid to the tax authorities.They become part of a companys costs and affecta companys profitability.

Figure 2.6

The number of taxes compared in the Philippinesand Singapore

Taxe base Philippines Singapore

ProfitCorporate incometax

Corporate incometax

Labourcompensation

Social Securitycontribution

development fund

Social security

Property Property tax

Stamp duty

Consumption VAT GST

Other Cheque transactions

Community tax

Local business tax

Insurance tax

Vehicle tax

Tax on interest

In the 2008 survey, 1,124 business leaders around theworld were interviewed. One of the questions asked waswhich aspects of a countrys tax regime were importantin influencing their investment decisions. Over 70%said that the total amount of taxes they pay was criticalor important26.

Figure 2.7 showsthe calculation for Chile.

As shown previously (in Figures 2.2 and 2.3), the averagecorporate income tax makes up 38% of the total, labourtaxes account for 33%, and other taxes 29%.

Figure 2.8

a number of geographical and economic groupings. Forall groupings, corporate income tax counts for less thanvaries between regions, with the highest percentage(21.1%). Conversely, the average percentage accounted


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28

highest in the African Union (44.3%).

Figure 2.9

which is below the world average. The highest average

PwC Global Total Tax Contribution study for themining sector

In 2008, PwC carried out the first global TTC studyfor large mining companies27. The results show thatwhen considering what mining companies contributein the countries where they extract natural resources,it is important to look at all the different taxesincluding mining taxes and royalties and licence feesin addition to corporate income tax. On average inany country, corporate income tax was less than half(48%) of the taxes and contributions borne by miningcompanies. On average the companies in the studypaid an amount equal to 12.5% of their turnover togovernment in taxes and other contributions borne.

Note: The chart shows the average global result for companies thatparticipated in the study.

Source: PricewaterhouseCoopers Global study for the mining sector.

People taxesProduction taxes

Property taxes

Mining taxes

fees and resource

rents

Other contributionsCorporate income

tax

Other profit taxes11%

10%

4%5%

3%

13%

6%48%

Taxes and contributions borne by the global miningindustry by percentage

000 peso 000 pesoProfit before total tax borne(Commercial profit)

213,752

Municipal tax 1,799

Unemployment insurance contribution 5,845

Accident insurance contribution 2,313

Property tax 4,513

Vehicle license 96

Fuel duty 1,151

Tax on cheque transactions 29

Total (15,746)

Profit before tax 198,006

Corporate income tax on PBT after

necessary adjustments (38,259)

Profit after tax 159,747

Total Tax (15,746 + 38,259) 54,005

TTR = Total Tax/ Commercial profit 25.3%

27 Total Tax Contribution PricewaterhouseCoopers Global study for the mining sector.


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29Paying Taxes 2010

Chile A leader in South America

Sandra Benedetto, PricewaterhouseCoopers (Chile)

In December 2008, the Latin American launch of PayingTaxes 2009 The global picture was held in Chile.There was significant media coverage, interest fromthe business community, and also from the Chileantax authorities. The report was presented by FranciscoSelame, lead partner of Tax and Legal Services atThe event included commentaries and analysis focusingon Chiles leading position in the region as well as a widerbenchmarking with other economies around the world.

The Paying Taxes study has become an objectiveparameter to demonstrate the leading position of thecountry in the region, with regards to the ease of payingtaxes. Taking into consideration previous reports, theresults show that Chile has a stable tax system which hasnot been subject to major changes.

The indicator for Chile which requires some attentionis the time to comply with taxes, which stands at 316hours per year. This is strongly affected by the structureof the social security system, which it seems demandsmore administrative work than in many other economies,especially because the Chilean system is privatised.In this system, the social security contributions are

system and every employee is affiliated to one AFP andsecurity contributions to the entity that is chosen byeach employee.

Paying Taxes has proved to be an objective tool thatallows us to assess the Chilean performance in taxadministration matters in comparison to the rest of theworld, and in particular, with other countries of the region.

In addition to the results from the Paying Taxes study,there has been significant interest in Chile in a separatepiece of work conducted by PricewaterhouseCooperswith the mining industry (also referred to on page28 of this report). This looked at taxes and othercontributions paid to government by mining companiesaround the world to provide greater transparency overthe contribution made to the public finances in thecountries where the mining companies operate. This isan important sector of the Chilean economy and thestudy has made it possible, for the first time, to havereal data around the composition of all of the taxes andcontributions paid.

Number of hours: 316

Number of payments: 10


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30

Figure 2.10there are several points to note. Compared with previousoverall from 46% to 44.5%. Two countries in particular Germany and Italy have cut their corporate incometax rates.

12.4%, it varies significantly across the region, from2.2% in Latvia and 4.1% in Luxembourg, to 21.9% inthe United Kingdom and 22.9% in Italy. In this regard, itis important to recognise that these variances reflect notonly differences in the statutory rate, but also the variousdetailed rules and allowances that apply in each systemfor calculating the tax base. Luxembourg has a statutory

rate for TaxpayerCo of 22.9%, but the availability ofinvestment tax credits offset the corporate income taxliability. The UK has a main statutory rate of corporationtax of 28%, which has been reduced from 30% (effectivefrom 1 April 2008). The corporate income tax rate for the

Figure 2.8

percentage make-up

Note: The chart shows the average result for the economies in each region and forthe world average for al l economies in the study.


Profit taxes

Labour tax

Other taxes

100%

80%

60%

20%

40%

0%

AfricanUnion

AsiaPacific

G20

Caribbean

WorldAverage

Figure 2.9

Note: The chart shows the average result for the economies in each region and forthe world average for all economies in the study.


Profit taxes

Labour taxes

Other taxes

70%

60%

50%

30%

40%

20%

10%

0%

AsiaPacific

Union

CentralAsiaand

LatinAmerica

WorldAverage

G20

AfricanUnion

PwC Total Tax Contribution (TTC) studies

In addition to the Paying Taxes study with theWorld Bank Group, PricewaterhouseCoopers alsoundertakes empirical studies, collecting tax-relateddata from large corporations around the world.

It is interesting to look at some of the comparisons.Finance Directors (an organisation whose memberscompanies in the UK), shows that, on average, largecompanies bear nine UK taxes and collect four more.For the Paying Taxes case study company, the figureis seven UK taxes borne and two taxes collected. In28largest Fortune companies), shows an average of16 taxes borne and 10 collected. The case studycompany bears 11 and collects two. The differentialsseen may arise from a business landscape, which forlarger companies, is more complex. The case studycompany operates in a sole location, whilst largercompanies will often operate in more than one place.Their results reflect the many different taxes that theywill be subject to at the state and municipal levels.


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31Paying Taxes 2010


of various additions and allowances which are applied tothe profit before tax and also because TaxpayerCo isa small company in the context of the UK, and marginalsmall companies relief applies to reduce the rate applied(27.5%) in the specific circumstances of TaxpayerCo.

The average rate of labour taxes for the employer in theThis contributes to the level of social payment and socialsupport services which generally exists in the region.The question being asked in some economies (see thediscussion in Paying Taxes 2009 regarding Belgium), iswhether the high cost represents value for money.

Italy provides a good example (Figure 2.11) of how labourfor our case study company. They account for 63% ofview of the reduced figures for local corporate income taxthese taxes.

an apparent low percentage for labour taxes andFigure 2.10).by the employer. In Denmark, the employees of our casestudy company bear taxes on their wages and salarieswhich are almost 18 times those levied on the employer.

This is evidenced in Figure 2.12.

This chart also shows that the level of taxes andcontributions on employment in Italy and Denmark isbroadly similar, but the split between employer andemployee is quite different. This illustrates the potentialimpact of government policy choices on the results,and also the limitation of the methodology in thiscircumstance. It would not be desirable for an economyto seek to improve their results simply by shifting theburden from the employer to the employee. Figure 2.12also shows the total employment taxes and contributions(whether paid by the employer or the employee), asa percentage of wages and salaries (the employmenttax wedge).

to 68.4% in Italy, and there is some conformity in theelements of its make-up between corporate income tax,labour taxes and contributions, and other taxes.

In the African Union, the range is even wider and theelements are more diverse (see Figure 2.13). The average

ranges from 9.6% in Namibia to 322% in the Congo

at 23% (compared to 12.4%), while labour taxes andcontributions are much lower, at 14% (compared to

Figure 2.10

29


Profit taxes

Labour taxes

Other taxes

70%

60%

50%

30%

40%

20%

10%

0%

Bulgaria

Luxembourg

Denmark

Ireland

Cyprus

Netherlands

Finland

Portugal

Sweden

Poland

Austria

Lithuania

Latvia

Germany

Spain

U

nitedKingdom

Belgium

France

Slovenia

Greece

Italy

Figure 2.11


Social security

contributions

Other

Tax on chequetransactions0.01%

Tax on real estate(ICI)1.25%

Chamber ofcommerce duties0.2%

Fixed tax on legaland fiscal registries0.01%

Fuel tax1.5%

Stamp duty onproperty transfer0.03%

Corporate income

tax onproductiveactivities

Mandatorycontribution

for worktermination

51%

3%

24%

10%12%

29 Malta is not covered in the Paying Taxes study and is therefore not included in the


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33Paying Taxes 2010


Figure 2.12

and Denmark

Labour taxesborne

Labour taxescollected

Note: These charts show the employment taxes for Italy and Denmark split between taxes borne and collected, and also the tax wedgewhich is the employment taxes as a percentage of wages and salaries for each economy.


1,000,000

500,000

0

Italy Denmark

Tax Wedge60%

40%

20%

0%

Italy Denmark

Figure 2.13


Profit taxes

Labour taxes

Other taxes

100%

90%

80%

60%

70%

50%

40%

30%

20%

10%

0%

203.8%

235.6%

278.6%

292.4%

322%

Namibia

Zambia

Madagascar

Zimbabwe

Cameroon

Mali

SouthAfrica

CtedIvoire

BurkinaFaso

Tunisia

Botswana

Lesotho

Comoros

Togo

Angola

Nigeria

Tanzania

G

uinea-Bissau

Liberia

Mauritius

Malawi

Seychelles

Gabon

Chad

Ghana

Mozambique

Senegal

Niger

Algeria

Benin

Uganda

Sudan

SoTom

andPrincipe

CapeVerde

Mauritania

Burundi

Gambia

Swaziland

Djibouti

Kenya

Guinea

SierraLeone


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34

Figure 2.14

Cascading

sales taxTTR %

Sales tax TTR

(%)

Proportion of

TTR (%)

Burundi 278.6 250.4 90

CongoDemocratic

322.0 249.7 78

Gambia 292.4 221.0 76

Sierra Leone 235.6 221.0 94


28.6%). Several economies have very low levels of labour

employer, while others such as South Africa have a lowlevel (2.4%). This, perhaps, leads to the question of howa higher level of social support can be funded in someAfrican economies.

A feature of some African tax systems is the high levelthe cascading sales taxes are a feature. Burundi, Congothese taxes (see Figure 2.14).

Figure 2.15indicator. It is apparent from this chart that there is astrong concentration of economies in the range 31% to

Countries at the low end of the distribution includeisland-states such as the Maldives, and oil-rich statesalso appear in this group, such as Luxembourg andbusiness investment.

variation in the types of economy. They include Franceand Belgium, where the labour taxes and contributionslevied on the employer are the major component (aimedat providing high levels of social services), and alsothe economies in Africa, which have high levels ofconsumption taxes borne by TaxpayerCo, in the form ofcascading sales taxes.

Tax and Development30

The Paying Taxes methodology gives a higher rankingin the tax cost sub-indicator, to economies with a lowerto this chapter, it does not follow that economies withWhat is important is how the tax system helps to fulfileconomic and social objectives and whether higher taxes

flow through to a better quality of life for citizens.

indicator were compared with the results for the same31development based on life expectancy, literacy ratebanded into three groupings economies with highhuman development, medium human development andlow human development.

government is less dependent on taxes. It also includesfive economies where government policy has beento keep corporate income tax low, to attract businessinvestment (see Figure 2.16).

Figure 2.15


35

30

25

15

20

10

5

0

0-5

41-45

21-25

61-65

91-95

16-20

56-60

86-90

36-40

76-80

6-10

46-50

26-30

66-70

96-100

11-15

51-55

81-85

31-35

71-75

>100

Number.ofeconomies

30 PwC discussion paper on tax and development (forthcoming).


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Switzerland The Swiss tax system holds a competitive position, with further

enhancements being made

Armin Marti and Luca Christen, PricewaterhouseCoopers (Switzerland)

Swiss values are world renowned. Swissness isattributed to high standards of quality, reliability, modestyand commitment, to name just a few. Over the past 150years, the Swiss people have continuously held on tothese values through their direct democracy system. As aresult, almost all Swiss legislation including the Swisstax legislation is fundamentally based on these virtues.

Switzerland is able to provide a stable businessenvironment with an international and highly educatedworkforce, social stability, advanced legal certainty,liberal labour legislation, and pronounced entrepreneurialfreedoms. The Swiss tax system is traditionallycharacterised by tax competition. Due to Switzerlandsdistinctively federal structure, each of the 26 cantons hasits own tax jurisdiction, which leads to a tax competitiveenvironment. A comparatively low corporate tax burdenand taxpayer friendly institutions are the result. Thealso confirmed in a separate Total Tax Contributionstudy, which PwC conducted in collaboration witheconomiesuisse. According to this empirical study of30.2% which is second lowest of all countries in whichsimilar PwC studies have been conducted. Moreover,Switzerlands tax burden is low with respect to profittaxes. Local companies in Switzerland can benefitfrom this.

The complexity of Switzerlands decentralisedjurisdictional structure, however, also results in a relativelyhigh number of different taxes and, consequently, a highnumber of tax payments compared to other countries.While the case study company in Switzerland is subjectto 15 taxes, the PwC TTC survey shows that there are, intotal, 49 different taxes which exist for corporations, andthat, on average, companies are subject to 28 of them.are most welcomed by businesses.

In an attempt to maintain and further enhance itscompetitive position, reforms to the corporate taxsystem have been announced by the Swiss government.Among the reforms being considered arethat thepreferential tax status for pure letter box (i.e. domiciliary)companies will be abolished. Moreover, a minimumtaxation for other preferred company types may beintroduced. There may also be an improved participationrelief at both the federal and the cantonal level, and theabolition of the issuance stamp duty is being discussed.Simplification of the VAT system is anticipated in 2010together with further reforms. These actions are part of asteady and gradual improvement process by the Swisstax institutions to maintain the attractive and sustainabletax environment which is shown by this study.

Number of hours: 63


35Paying Taxes 2010



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36

Where TTRs exceed 100%

The assumptions which are built into the Paying Taxescase study are such that the company, wherever it islocated, has a fixed rate of gross profit margin (20%).means that TaxpayerCo would need a profit marginabove that level in order to pay all of its taxes.

Where the company bears cascading sales taxes onits transactions (which are not calculated by referencebe seen in Figure 2.14. The company would need toamend its pricing, to earn a gross profit margin, well

in excess of 20%, to enable it to pay these taxes. Forexample, in Burundi the gross profit would need to be32.1%. The case study does not allow for this.

These economies are in the top quartile for both the

Figure2.17). Although other factors are clearly involved, it willbe interesting to consider whether the tax system mayhave contributed to the high human development results.Figure 2.16corporate income tax (and other profit taxes) is less thancontributions and other taxes.

In contrast, there are 22 economies, all in Africa, which(see Figure 2.18below 35%.

What is interesting is that although the average rate forcorporate income tax for these six economies, at 20.6%,is close to the world average of 18.2%, employer taxesand social contributions are far less, at 5.3%, comparedto the world average of 16.1%. Four economies haveasked is whether the tax system can be used to stimulatebusiness investment and facilitate entry to the formaleconomy to lead to increased tax revenues. Another iswhether there are other systems which can be looked toas a model.

PwC Total Tax Contribution (TTC) studies and TTR

In addition to our contribution to the Paying TaxesStudy, PwC also carries out Total Tax Contributionstudies with large companies in a number of countriesfor companies included in each country in thesestudies. It is interesting to note the similarities andthe differences between these results and those ofPaying Taxes.

is heavily influenced by labour taxes. In Australia, thelabour tax percentage is less than in Paying Taxessince the superannuation guarantee is not included(see page 97 in Appendix 2). It is important to notethat these TTC results will be heavily influenced by themix of industry sectors for companies in each study.industry sector than by size, as there are often taxeswhich impact only certain sectors.

of tax.

Source: PwC Total Tax Contribution studies32.

Corporate income tax

Labour taxes

Other taxes borne

60%

25

.3% 3

0.2%

31.0%

31.8%

35.1%

35.4%*

38.2% 4

2.8%

52.1%

50%

30%

40%

20%

10%

0%

Canada

Switzerland

India

Netherlands

Australia

SouthAfrica

UK

US

Belgium

32 2007 Survey. / Total Tax Contribution: Canadas Tax regime: complexity and competitivenessMay 2009 / Total Tax Contribution: PricewaterhouseCoopers survey for the Federationof Indian Chambers of Commerce and Industry. Published March 2009 / What is yourcompanys Total Tax Contribution? 2008 survey results PricewaterhouseCoopers survey in

Australia. Published February 2009. / Total Tax Contribution: PricewaterhouseCoopers LLP

in Switzerland pay? PricewaterhouseCoopers survey in Switzerland. Published October 2009.

/Total Tax Contribution: What is the actual contribution of large companies to the fiscus.PricewaterhouseCoopers survey in South Africa. Published May 2009.


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37Paying Taxes 2010


The time to comply

The time to comply measures the tax compliance burdenfor TaxpayerCo. It covers three major types of taxes corporate income taxes, labour taxes and contributions,and consumption taxes. The World Bank Doing Businessteam asks contributors to estimate the hours neededto comply and also to analyse these between three

there is a degree of judgement involved in the compilationof the data, as measurement relates to a case studycompany, not a real situation. Considerable effort goesinto checking and confirming that the methods used areconsistent, including verification by several contributors,especially where amendments are proposed in light of

changes to the tax system. It is also worth noting that,during the five years of the Paying Taxes study, the timeto comply has naturally been a focus of governmentattention and the results have been discussed in detail inmany countries. Brazil and Mexico are two examples.

As an example of the calculation of the time to complyFigure 2.19 shows the calculation for Latvia. It alsoshows the detail which is available. Contributors areasked to identify the key steps in the process for eachof the areas of activity prepare, file and pay. In Latvia,labour taxes and contributions take up the largest amountof time. Out of a total of 165 hours, 48 are spent on thepreparation and maintenance of mandatory records,which are only required for tax purposes, including payrollpaper files. The experience around the world is that therequirement to keep extra books can add significantly tothe time to comply. VAT is the next most time consumingat 83 hours, which includes 24 hours spent analysingaccounting information to identify tax sensitive items,including the validation of suppliers VAT numbers.

As shown previously in Figure 2.2, the average time tocomply for all economies in the study is 286 hours ofwhich 26% is spent on corporate income tax, 37% onlabour taxes and contributions, and 37% on consumptiontaxes. Figure 2.20 compares the average time to

Figure 2.17

TTR TTR rankTime to

comply

Time to

comply rank

China

24.2% 22 80 14

Ireland 26.5% 26 76 11

Luxembourg 20.9% 17 59 6

Singapore 27.8% 29 84 17

Switzerland 29.7% 37 63 8


Figure 2.16

split by each type of tax.


Profit taxes

Labour taxes

Other taxes

0%

10%

20%

30%

Luxembourg

Singapore

China

Switzerland

Ireland

Malawi

Figure 2.18


200%

203%

235%

278%

322%

150%

50%

100%

0%

Zambia

Tanzania

Benin

Nigeria

Niger

SierraLeone

Gu

inea-Bissau

Guinea

Burundi

Senegal

M

ozambique

Mali

C

tedIvoire

Angola

B

urkinaFaso

Chad


Labour taxes

Other taxes borne


38/116

Czech Republic Paying Taxes and the economic downturn: two drivers for

tax reform

Lenka Mrzov, PricewaterhouseCoopers (Czech Republic)

media, as well as the official authorities, particularlythe Ministry of Finance and the Ministry of Industryand Trade. In response to the results of the study, theMinistry of Finance initiated a process to undertake aregulatory impact analysis, to assess the effectivenessand administrative burden of the Czech tax system, andto identify potential for reform.

The report led to intense discussions between PwC andrepresentatives from the Ministry of Finance. At the timeof publishing the 2009 results, Peter Chrenko, DeputyThe Ministry takes the challenge to create a moderntax system with simplified administration very seriously.We are working on three key projects to reduce the taxcompliance burden: a new tax administration code, asingle revenue agency to administer all taxes, customsand social and health insurance, and a new Income TaxCode. These reforms, if approved, would certainly reducethe time required to comply with the tax legislation,allowing companies to focus more time and energy onlaunched before 2010, we are very keen to understandthe Doing Business methodology and use it as abenchmark to identify and introduce some quick winsimmediately and reduce the time needed by at least 30%for the next year.

It is pleasing to see that the initial goal for reducing thetime to comply has been achieved. The 2010 resultsshow that the time needed to comply with the Czech taxsystem has decreased considerably. This is largely due to

the introduction of electronic filing for VAT as of January2008, and the introduction of a flat personal tax ratewhich, to some degree, has also helped to simplify theprocess of employee tax calculation for the company.

As has been seen across the world, tax policy has beenused as an important instrument to aid recovery from thechanges have been made to corporate income tax, VAT,and social security insurance to assist businesses insurviving the downturn. For example, the acceleration ofdepreciation of tangible fixed assets and leasing costs,the creation of tax-deductible provisions for receivablesfrom debtors in bankruptcy, and for input VAT to beclaimed on the purchase of passenger cars used forbusiness activities.

While it might be difficult for governments to decreasetax rates, reducing the administrative burden is alwaysconsidered to be a win-win measure, delivering benefitsto both government and business. This year, electronicdata boxes are being introduced for all legal entities toprovide a key interface with state authorities. The aimof these boxes is to reduce the administrative burdenfor businesses and to encourage taxpayers to do mostof their filings and communication with authoritieselectronically, as well as to encourage state authorities touse modern means of communication. Another importantchange is the new Tax Code, which was passed in thesummer and will become effective as of 2011.

Mr. Chrenko has indicated that the comprehensive taxreform currently being prepared will achieve the fullbenefits in the long term. Challenges still lie in improvingthe mechanisms for the calculation and collection oflabour taxes, especially social security, as these comprisethe largest part of both the total tax rate and the timeneeded to comply with the tax system.

Number of hours: 613


38


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39Paying Taxes 2010


Figure 2.19

Analysis of hours to comply in Latvia

Preparation

Corporate

income

taxes

Labour

taxes

Consumption

taxes

Data gathering from internalsources (for exampleaccounting records).

8 48 18

Additional analysis ofaccounting information tohighlight tax sensitive items.

8 12 24

Actual calculation of taxliability including datainputting into software/spreadsheets or hard

copy records.

2 24 12

Preparation and maintenanceof mandatory tax recordsif required.

6 48 12

Total 24 132 66

Filing

Completion of taxreturn forms.

2 12 6

Time spent submitting formsto tax authority, which mayinclude time for electronicfiling, waiting time at taxauthority office etc.

1 3 3

Total 3 15 9

Paying taxes

Calculations of tax paymentsrequired including, ifnecessary, extraction of datafrom accounting records, andtime spent maintaining andupdating accounting systemsfor changes in tax ratesand rules.

1 12 6

Analysis of forecast dataand associated calculationsif advance paymentsare required.

2

Time to make the necessarytax payments, either onlineor at the tax authority office(include time for waiting in

line and travel if necessary).

1 6 2

Total 4 18 8

Grand Total 31 165 83

Note: This table shows the calculation of the hours to comply split between thetypes of tax and between the processes for prepare, file and pay.


Malawi

Figure 2.18


200%

203%

235%

278%

322%

150%

50%

100%

0%

Zambia

Tanzania

Benin

Nigeria

Niger

SierraLeone

Gu

inea-Bissau

Guinea

Burundi

Senegal

M

ozambique

Mali

CtedIvoire

Angola

B

urkinaFaso

Chad


Labour taxes

Other taxes borne

PwC Total Tax Contribution Studies and timeto comply33

Group in the UK, collected data on the cost ofcomplying with the UK tax system. The companiesparticipating in the study reported that, on average,12.7 full time employees were required to deal with taxcompliance. 43% of time spent related to corporateincome tax, 28% to employment taxes, and 20% toVAT, with the remaining 9% relating to other taxes.The data provided was translated to a monetarycost, and added to spend on external providers forcompliance services. This cost equated to 1.57%of the total taxes borne, effectively representinga surcharge of this amount on the tax bills of thecompanies in the study.

the company, the time spent on tax compliance andthe related cost can be significantly more, in absoluteterms, the larger and more complex the company is.

Group. Published February 2009.


40/116

40

comply for a number of geographical and economic

groupings. TaxpayerCo needs the least amount of timean average number of hours to comply below the worldaverage, and needs the most time in Latin America andthe Caribbean.

As mentioned above, the data collected enables ananalysis of the hours spent on compliance between thatrequired for preparation, filing and payment. Figure 2.21shows this split for those economies where compliancewith labour taxes and contributions takes over 300hours. It shows that time to prepare is generally themost burdensome part of the process and, as shown forLatvia in Figure 2.19, the preparation and maintenanceof mandatory books for tax can contribute substantiallyto this.

Note: The chart shows the average result for the economies in each region andfor the world average for all economies in the study.


Figure 2.20

Comparison of the number of hours to comply by region400

300

100

200

0

Corporate income tax time

Labour tax time

Consumption tax time

WorldAverage

Afr

icanUnion

A

siaPacific

CentralAsiaand

G20

Caribbean

Numberofhours

Figure 2.22

each type of tax.


Corporate income tax time

Labour tax time

Consumption tax time

350200250

650

150

550

200

600

100

500

50

450

0

400

Luxembou

rg

Belgiu

m

Finland

UnitedKingdo

m

Austria

Poland

Ireland

Netherlands

Sloven

ia

Sweden

Germany

Portug

al

Lithuan

ia

Latv

ia

Ita

ly

France

Bulgaria

Denma

rk

Spa

in

Cyprus

Greece

Numberofhours

Note: This chart shows the hours to comply with labour taxes split betweenbetween the time to prepare, file and pay.


Figure 2.21

Prepare

File

Pay

Venezuela

500

800

400

700

300

600

100

200

0

Jamaica

Ukraine

Nigeria

Vietnam

Bolivia

Brazil

Cameroon


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Brazil The Public System of Digital Bookkeeping (SPED) a new challenge

Carlos Iacia, PricewaterhouseCoopers (Brazil)

The Paying Taxes reports have been very useful and havereceived considerable comments in Brazil over the lastfew years. The media coverage has been extensive, andthe press has repeatedly followed the results presented inthe report. Additionally, Brazilian tax scholars have usedthe results in their studies and have commented on themduring their lectures.

Our main issue, which is the time spent by taxpayersto comply with all the obligations imposed by the taxauthorities, remains unchanged in the results of thisyears Paying Taxes survey.

The Brazilian Federal Government has already reactedto the results and has taken actions towards changingthis scenario. Besides the potential for

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Paying Taxes 2010 Global Report (via World Bank)

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