Paying Taxes 2009 the Global Picture
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Paying Taxes 2009 The global picture THE WORLD BANK Contacts For further information, or to discuss any of the findings in this report, please contact: World Bank Group PricewaterhouseCoopers* Penelope Brook Bob Morris +1 202 473 3748 PricewaterhouseCoopers LLP, US [email protected] +1 202 414 1714 [email protected] Sylvia Solf Susan Symons +1 202 458 5452 PricewaterhouseCoopers LLP, UK [email protected] +44 20 7804 6744 [email protected] Caroline Otonglo Neville Howlett +1 202 473 9559 PricewaterhouseCoopers LLP, UK [email protected] +44 20 7212 7964 [email protected] * In this publication, the terms ‘PricewaterhouseCoopers’ and ‘PwC’ refer to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Foreword This is the third Paying Taxes publication based on This publication brings together the latest findings the ‘paying taxes’ indicator from the World Bank – IFC and analysis on the ‘paying taxes’ indicator from Doing Business project. The project assesses the this years Doing Business report in Chapter 1, with ease of paying taxes as part of a broader analysis of perspectives from PricewaterhouseCoopers on the regulations relevant to domestic, small to medium data in Chapter 2. sized companies in 181 economies around the world. It does so by assessing the time required for firms to For the first time this year, we include some analysis prepare and file returns and pay taxes; the number of and discussion of data which, whilst collected as tax payments per year; and the company’s total tax part of the study, does not form part of the rankings liability as a percentage of commercial profits. (in Sections 2 and 3 of Chapter 2). This additional non‑indicator data has allowed us to look at other With the current global economic turmoil, economies aspects of tax systems across the world, and has around the world will be finding that tax revenues added insights and understanding to our analysis. are coming under pressure. This will cause them to examine the effectiveness of their tax systems – not In last year’s publication, we included a significant just the rates that they charge but the way the systems amount of detail on the methodology used to produce work. The aim of the World Bank – IFC Doing Business the data, and more transparency on the case study project is to provide an objective basis for improving company and the underlying assumptions. This is the regulatory environment for business, informing the included again this year in Appendix 2. analysis of regulatory burden and providing insight for reformers. In this spirit, the Paying Taxes study This year we have also included, throughout the explores the findings embodied in the ‘paying taxes’ report, examples of how many different economies indicator and illustrates both successful reforms and have made use of the data. These provide insight reform challenges. Whilst there are almost as many into the discussions which the Paying Taxes ways of levying taxes as there are economies in this study has generated with government and other study, there is a common message of efficiency, which interested parties. pays benefits to all sides. We hope that the results of the study are interesting and, as in previous years, we welcome feedback and comments. Penelope Brook Susan Symons Director of the Global Indicators and Analysis Group Tax partner World Bank Group PricewaterhouseCoopers LLP, UK Contents Foreword 3 Executive summary and key findings of the study 6 Chapter one Paying Taxes – Findings of the World Bank – IFC Doing Business 2009 report 8 Chapter two A PricewaterhouseCoopers commentary on the results Section 1 The key indicators 16 Section 2 Further insights on tax administration 48 Section 3 Influencing behaviour: tax incentives and environmental taxes 58 Section 4 What makes a good tax system? A PricewaterhouseCoopers perspective 64 Appendix 1 – the data tables 72 Appendix 2 – methodology Introduction 87 The case study company 87 The framework of the Doing Business study 88 The PricewaterhouseCoopers Total Tax Contribution (‘TTC’) framework 92 What is a tax? 93 Payments in respect of labour 94 Taxes borne and collected 95 Effective tax rates for current corporate income tax 95 Appendix 3 PricewaterhouseCoopers Total Tax Contribution surveys 96 Executive summary and key findings Executive summary The World Bank – IFC Doing Business project includes a measure of the ease of paying taxes for small to medium sized domestic companies in 181 economies around the world. The Doing Business ‘paying taxes’ indicator is based on a case study company and assesses taxes from this company’s perspective using three indicators: • The Total Tax Rate (the cost of all taxes borne by the company) • The time taken to comply with the major taxes • The number of tax payments for the major taxes The data on all three sub‑indicators, the rankings by economy for these sub indicators and the overall rankings are included in Appendix 1. Further details on all the underlying data are available at www.doingbusiness.org/exploretopics/payingtaxes The case study company is a flower pot manufacturer and retailer. This company has been selected as it is a business that can be identified with worldwide; a standard fact pattern is given so that the tax indicators generated can be compared across many diverse economies without being significantly distorted by industry specific incentives and reliefs. The business is a simple domestic one so that the focus of the results is purely on the local tax system. The year the study covers 181 economies around the world (up from 178 last year). In last year’s publication we focused on explaining the methodology and understanding the results. These are given this year in Appendix 2. This year’s report combines a summary of the findings on the ‘paying taxes’ indicator (from the recent Doing Business 2009 report prepared by the World Bank – IFC), and commentary based on the experience of PricewaterhouseCoopers’ firms around the world. These commentaries focus on some of the issues highlighted by the results and on how the findings are being used by governments in all parts of the world. 6 Executive summary and key findings We also show some additional data, collected as • Companies make an important tax contribution as part of the study, which is not used in calculating employers. For the purpose of the Paying Taxes the indicators, but which nevertheless provides data, social security contributions and labour useful insights into tax systems. We would welcome taxes are included, as these can add significantly views and input on the use of this data from users of to the cost and compliance burden for business. this report. Governments need to make it easy to comply with these taxes and contributions. Paying Taxes provides a comparison of the world’s • It is often assumed that consumption taxes, and in tax systems from the point of view of the case study particular sales taxes, are simply taxes collected on company. The aim is to provide insights and data, behalf of government and therefore have a minimal which will assist the process of tax reform and to impact on business. However, some sales taxes gain a more in‑depth understanding of the results. can be a tax borne, and all sales and consumption It is important to look beyond the rankings to the taxes have a significant impact on the number of underlying data. hours it takes to comply and the number of tax payments made. Therefore these taxes also need to An understandable challenge from users of be efficient. previous Doing Business ‘paying taxes’ indicator reports is ‘What makes a good tax system?’ • Beyond the aspects captured directly in the Doing PricewaterhouseCoopers offers some suggestions in Business ‘paying taxes’ indicator, the non‑indicator Chapter 2, Section 4, and would welcome comments data identifies additional aspects of tax systems and feedback. to consider. The number of levels of tax authority, the number of separate authorities, ambiguity in tax legislation and the way in which companies are selected for tax audit are examples. They may warrant further research. Key findings of the study • Transparency around the taxes collected by From the indicator data: government and the government’s broader fiscal strategy can assist with securing the trust of • Economies that rank highly on the ease of paying business. It is interesting to note that 14 percent taxes tend to have lower and less complex taxes of contributors reported that such information is with simple administrative processes for paying not publicly available. taxes and filing tax returns. • In addition to being a way of raising revenues • The most frequent reforms implemented are the for necessary public expenditures, tax systems reduction of corporate income tax rates and continue to be used by governments to influence electronic filing. Tax reform is not just about the the behaviour of individuals and businesses. Around introduction of tax rates; administrative aspects are 40 percent of contributors to the Paying Taxes almost equally important. data indicated that their economies have Small and Medium sized Enterprise (SME) and Research • As in previous years, the Doing Business analysis and Development (R&D) incentives included within confirms that corporate income tax is only one of their tax systems. PricewaterhouseCoopers sees many taxes that business has to bear. It accounts environmental taxes as having the potential to be for only 13 percent of payments, 26 percent of used to change behaviours. Further research is compliance time and 37 percent of the Total Tax required to assess the extent of these taxes and Rate (TTR) as such, any reform agenda needs to their effectiveness.