New economies to benefit from simpler tax systems

A new report by the World Bank, IFC and PricewaterhouseCoopers shows that tax authorities worldwide are overhauling tax systems by reducing taxes, streamlining administrative processes and modernising payment systems.
Paying Taxes 2009, the third report in an annual series, draws on the Doing Business 2009 report that measures the ease of paying taxes for mid-size domestic companies in 181 economies, analyses tax systems and tracks related reform efforts.
The report found that that in 2007/08, 36 economies made it easier to pay taxes. This year’s top reformer is the Dominican Republic. Malaysia is the runner-up.
The most popular reforms were reducing corporate income tax rates (in 21 economies) and improving electronic filing and payments systems efficiency (in 12 economies). Eight economies reduced the number of taxes paid by business.
On average, corporate income tax accounts for only 13% of tax payments, 26% of compliance time, and 37% of the total tax rate.
Employment taxes account for 34% of the total tax rate, taking into account only amounts borne by the employer. Employment taxes are particularly prevalent in the European Union and account for 65% of the total tax rate for the case study company in the region.
On average, 36% of the overall time to comply with tax systems and 48% of the number of tax payments are spent on consumption taxes.
“Corporate income tax reform has had a positive impact for government and business in a number of economies, yet these benefits could be multiplied if tax reform is looked at in its entirety,” said Susan Symons, PricewaterhouseCoopers LLP partner.
“Tax reform should include all business taxes – not just corporate income tax. It should include all administrative aspects and the relationships between government and business generally. These are all fundamental to effective tax systems,” she added.
World Bank-IFC economist Rita Ramalho explained that “countries are easing the complexity of their tax system and reducing the cost burden for businesses. Since 2004, average total tax rates have been reduced by 3% and time to comply with taxes decreased by 5%. This reform effort can broaden the tax base and increase tax revenues.”
The World Bank Group’s Doing Business 2009 report used a case study company and ranked tax systems using three indicators. The first indicator is the total tax rate and looks across all taxes that businesses pay. The other indicators are the time it takes to comply with the major types of taxes and the number of tax payments.
This year’s Paying Taxes stury top reformer was the Dominican Republic that lowered the corporate income tax from 30% to 25%, eliminated several taxes (including stamp duty), reduced the property transfer tax, and implemented an online filing and payment system.
Four European Union countries are in the top 20 for ease of paying taxes: Ireland (6), Denmark (13), Luxembourg (14) and the U.K. (16). Meanwhile, Italy (128), Poland (142) and Romania (146) have the more complex systems in the EU. The overall rankings for the EU on ease of paying taxes are, in order, Ireland, Denmark, Luxembourg, UK, The Netherlands, Estonia, Latvia, Sweden, Lithuania, Greece, Belgium, France, Portugal, Slovenia, Germany, Spain, Austria, Bulgaria, Finland, Hungary, Czech Republic, Slovakia, Italy, Poland and Romania. Cyprus was not included in the report.
The overall ranking for the G8 countries is: the U.K. (16), Canada (28), the United States (46), France (66), Germany (80), Japan (112), Italy (128) and Russia (134).
Economies that reduced corporate income tax rates in 2007/08: Albania, Antigua and Barbuda, Bosnia and Herzegovina, Burkina Faso, Canada, China, Cote d’Ivoire, Czech Republic, Denmark, Dominican Republic, Georgia, Germany, Italy, FYROM, Madagascar, Malaysia, Morocco, New Zealand, Samoa, St. Vincent and the Grenadines, and Thailand.
Economies that simplified the process of paying taxes: Azerbaijan, Belarus, China, Colombia, Dominican Republic, France, Greece, Honduras, Malaysia, Mozambique, Tunisia and Ukraine.
Economies that eliminated some taxes: Belarus, Dominican Republic, Georgia, Madagascar, Malaysia, Mexico, South Africa and Uruguay.