There are radical proposals under discussion related to tax and how tax systems operate. It may change the way in which the international tax system works so a closer look today can help preparing our position papers for future legislation.
PwC recently launched Paying Taxes 2014, the eighth edition of their joint annual report with the World Bank and IFC. This is a unique study which investigates and compares tax regimes across 189 economies worldwide, ranking them according to the relative ease of paying taxes. Paying Taxes looks not only at corporate income tax, but at all of the taxes and mandatory contributions that a domestic medium-size case study company must pay. It considers the full impact of all these taxes in terms of both their tax cost and their compliance burden on business.
The study can be downloaded from www.pwc.com/payingtaxes. You can find out how your economy compares with others or you can try out the comparative modeler tool to create your own peer groups from all the economies and regions in the study (tool available at www.pwc.com/payingtaxesmodeller )
As in previous years, the report is expected to be a catalyst for some interesting debate with tax authorities, governments, and business around tax systems and how they can be reformed. Paying Taxes 2014 continues to focus on the trends from the data included in the study. The analysis looks at this from a regional perspective and this year they have taken a more detailed look at the trends for the types of tax within each of the sub-indicators. This has provided some interesting findings around how governments are choosing to levy taxes.
Some of the key findings in this year’s report include:
- On average in 2012, it took the case study company 268 hours to comply with its taxes. It made 26.7 payments and paid an average Total Tax Rate of 43.1%.
- Reforms in business tax systems continue around the world. The number of economies reforming increased from 31 last year to 32 in the most recent study. The focus continues to be on reducing the administrative burden of the tax system.
- All three paying taxes indicators have fallen consistently over the period of the study reflecting the reforms that governments have implemented with a view to making paying taxes easier and so easing the burden for business and government.
- While the global average Total Tax Rate has continued to fall in 2012, 14 economies have significantly increased their Total Tax Rate while 14 have reduced it. If the exceptional rate reductions which arise from replacing cascading sales tax with VAT are excluded, the global average Total Tax Rate has started to rise in 2012 (0.2 percentage points).
- Over the nine years of the study the Total Tax Rate attributable to profit taxes has fallen faster than for the labour taxes borne by the case study company so that labour taxes are now the largest element of the Total Tax Rate
- On average consumption taxes have always taken the longest time to comply. Over the nine years of the study the time to comply has improved most for labour taxes.
- Central Asia & Eastern Europe is the region that has seen most reform over the nine years of the study, with the largest fall in the average for both the time to comply (by 220 hours) and the number of payments (by 25).
- The highest average tax cost is in Africa, amounting to 52.9%, the lowest is in the Middle East where the average is 23.7%. Over the last nine years the largest falls in the Total Tax Rate have been in Africa (by 16.0 percentage points), Central Asia & Eastern Europe (by 15.7 percentage points) and the Middle East (by 15.6 percentage points).
- The highest number of hours to comply is found in South America with 618 hours, the lowest is in the Middle East with 159 hours.
- The most payments made are in Africa amounting to 36.1 followed by Central America & the Caribbean with 33.7. The fewest payments are made in the North America where the company has to comply with only 8.3 payments. This is largely due to the ability of companies to file and pay taxes online.