www.pwc.com/payingtaxes 68201 Paying Taxes 2012 The global picture A fair, sustainable tax system – how can governments create an environment that fosters business investment and economic growth? Contacts PwC The World Bank/IFC John Preston Augusto Lopez Claros Global Head of External Relations, Director, Regulation and Policy for Tax Global ,ndicators andb$nalysis PwC UK +1 202 458 8945 +44 (0)20 780 42645 alopezclaros@ifc.org john.preston@uk.pwc.com Sylvia Solf Andrew Packman Program Manager, Doing Business Total Tax Contribution Leader +1 202 458 5452 PwC UK ssolf@worldbank.org +44 (0)1895 52 2104 andrew.packman@uk.pwc.com Tea Trumbic Private Sector Development Specialist Neville Howlett +1 202 473 0577 Director External Relations, Tax ttrumbic@worldbank.org PwC UK +44 (0)20 7212 7964 neville.p.howlett@uk.pwc.com Contents Foreword 1 .ey themes and ndings 3 About Paying Taxes 5 Chapter 1: Findings of the World Bank and IFC’s Doing Business 2012 report 9 Chapter 2: PwC Commentary. $ fair, sustainable tax system how can governments create an environment that fosters business investment and economic growth? 21 Chapter 3: Using the Paying Taxes data around the world 59 Appendix 1: The Paying Taxes methodology 95 Appendix 2: $bout Doing Business: measuring for impact 101 Appendix 3: The Paying Taxes reforms summarised by the World Bank and IFC 107 Appendix 4: The data tables 111 Foreword Over the last three years the world has experienced an extraordinary nancial and economic upheaval. The nancial turmoil continues to reshape the economic landscape and to present dif cult choices for governments in terms of public spending and scal policy. Severe damage has been caused to the public nances in many economies and dif cult measures are being taken to repair them. In an increasingly global economy, business investment, capital innovation and skilled people will Tuickly ow to countries where tax systems encourage and offer the prospect of economicbgrowth. Governments in economies of all sizes and at all stages of development are struggling with the tax policy choices available to them. While taxes are essential for economic and social development, it is important that the taxes levied do not hinder the ability of companies to generate a suf cient and consistent return so that they can reinvest and grow their business. But while the perspective of business and government on what the optimum amount of taxes to levy may differ, there should be a common agenda regarding the administration of tax systems and the need to ensure that it is simple and ef cient. Both bene t from tax systems which are simple to administer and where levels of compliance are high. The quality of the rules that underpin the administration of the tax system is therefore very important. If care is taken to create a system which is easy to administer, then it is more likely that businesses will operate within the formal economy and as a consequence that government will be able to collect the revenues that it needs to fund expenditure on infrastructure, education and public health. This expenditure supports productivity, a key driver of economic growth, and so helps to promote a virtuous circle ofbdevelopment. Our Paying Taxes study demonstrates again that reform of tax systems around the world is continuing. There is an increasing focus on improving the administrative aspects of tax systems including the use of electronic ling and payment for tax returns, the reduction in the number of taxes per base and an increasing use of self assessment procedures. Governments, business and civil society all bene t from a fair, stable and sustainable tax system which can help to encourage growth. $rticles included in this report continue to demonstrate the engagement of government with tax reform giving insights into how the Paying Taxes data has been used and providing details of the reforms that have been and are being implemented. We welcome feedback and encourage users of this report to provide additional input and comments, so that the value of the data can continue to be enhanced for the future. Augusto Lopez-Claros Andrew Packman Director, Total Tax Contribution Leader Global Indicators andb$nalysis PwC UK The World Bank Group Key themes The impact that tax systems have on companies is important and governments and ndings should continue to develop tax systems which foster business investment and economicbgrowth. The private sector plays an essential role in contributing to economic growth and prosperity including paying and generating taxes. On average, around the world our case study company makes 28.5 tax payments in a year, takes 277 hours to comply with its tax affairs and has a tax cost of 44.8% of its commercialbpro ts. It is important to look at each Paying Taxes indicator separately as they measure different aspects of the taxbsystem. Tax rates matter. The size of the tax cost for business matters for investment and growth. Keeping tax rates at a reasonable level can encourage the development of the private sector and the formalisation ofbbusiness. Tax administration matters. Ef cient tax administration can help encourage businesses to become formally registered and the economy to grow, to expand the tax base and increase tax revenues. Both business and government can bene t from tax systems which are simple to administer and where levels of compliance arebhigh. The downward trend in the The majority of economies in Different government practice Paying Taxes results continues, the Paying Taxes study charge in administering other driven by many successful corporate income tax or a taxes can also impact the tax reforms showing that similar tax on the pro ts of the compliancebburden. improving the tax system case studybcompany. Complicated or ambiguous tax for business is high on Only ten economies do not levy a rules, additional layers of taxation governments’ agenda. corporate income tax or similar tax and the need to deal with different The average Total Tax Rate has fallen on our case study company and in a tax authorities can all increase the by 8.5%, more than 1% for each year, further three no corporate income complexity and compliance burden. the time to comply by 54 hours, more tax is paid due to the availability of than a day a year and the number of generous reliefs and allowances. payments by ve. Ef cient online systems make paying taxes easier for both Multiple employer social business and government. When considering how the tax contributions can add to the Electronic ling and payment reduces system impacts business, and tax cost, and also to complexity the amount of paperwork, allows a what companies contribute to and the compliance burden. more targeted and risk based approach public nances it is important Multiple taxation raises the cost of to audit and compliance and can help to look at all of the taxes that doing business increasing the number eliminate corruption. companies pay. of payments that need to be made and For our case study company the Paying the number of hours required. Taxes results show that on average The Paying Taxes study enables more than nine taxes are paid with governments to benchmark corporate income tax representing The time needed to their tax system. just 12% of tax payments, 25% of comply with 9$T varies The use of a case study company the compliance time and 36% of the considerably around the enables a comparison with relevant taxbcost. world and even between peer groups including geographic neighbouringbcountries. neighbours or economies in the same $dministrative procedures vary from economic grouping. Paying taxes is easiest in high country to country and this has a income economies, while only signi cant impact on how long it takes 22% of low income economies to comply with 9$T. The purpose of the Paying are in the rst or second Taxes study is to provide data quartile for the overall ranking. to inform the discussion around Tax revenues are a more sustainable tax policy, tax administration, source of nancing for developing and to encourage dialogue countries than debt or aid, so good onbreform. tax systems can help to meet the Dealing with tax audits and disputes Millennium Development goals. was the area that most contributors wanted to improve followed by the approach of the tax authorities. About Paying Taxes In the words of Oliver Wendell Holmes, The Paying Taxes study is unique U.S. Supreme Court of Justice in because it generates a set of indicators 1904, “Taxes are what we pay for a that measure the world’s tax systems civilized society.� Governments need from the point of view of business sustainable funding for social programs and also because it covers the full and public investments to promote range of taxes paid in 183 economies, economic growth and development. measuring how business complies Programs providing health, education, with the different tax laws and infrastructure and other amenities are regulations in each economy. As well important to achieve a common goal as corporate income tax on pro ts, of a prosperous, functional and orderly business pays employment taxes, social society. Those programmes require contributions, indirect taxes, property governments to raise revenue. taxes and a whole variety of smaller levies including environmental taxes. The private sector plays an essential The impact that tax systems have on role in contributing to economic business is therefore important. growth and prosperity. Companies contribute to socio-economic This is the seventh year that the Paying development by employing workers, Taxes indicators have been included in improving the skills and knowledge Doing Business project run by the World base, buying from local suppliers Bank Group. The indicators measure and providing products and services the ease of paying taxes for a small to that improve people’s lives. They also medium-sized domestic company, in all contribute to government revenues of the 183 economies that it covers. through generating and paying taxes. “Taxes are what we pay for a civilized society.� Oliver Wendell Holmes U.S. Supreme Court of Justice (1904) The objectives of the study are: All three sub-indicators are equally weighted to arrive at an overall to provide data which can be ranking, however it is important to compared between economies on a look at each one separately, as each like-for-like basis; measures a different aspect of the tax to facilitate the benchmarking system, generating important ndings of tax systems within relevant that are not necessarily revealed in the economic and geographical overall ranking. groupings, which can provide an opportunity to learn from peer The results for each sub-indicator, group economies; and split by type of tax, and the full set to enable an in-depth analysis of of rankings, calculated on a basis the results which can be used to which is consistent with previous help identify good practices and years, are included in Appendixb4 of possiblebreforms. this publication. Further details are also available on the PwC website. Paying Taxes uses a case study scenario The full methodology for the case to measure the taxes and contributions study company and the indicators paid by a standardised business and is explained in Appendix 1, and a the complexity of an economy’s tax description of the Doing Business compliance system. This case scenario project as a whole is set out in uses a set of nancial statements Appendixb2. and assumptions about transactions made over the year. Tax experts from Chapter 1 of this publication sets a number of different rms in each out the perspective from the World economy (including PwC*), compute Bank Group. It looks at why tax rates the taxes and mandatory contributions and tax administration matter, and due in their jurisdiction, based on includes a discussion of reforms the standardised case study facts. and good practices with a focus on Information is also compiled on the electronic ling, one tax per base and frequency of ling and payments, as selfbassessment. well as the time taken to comply with tax laws in an economy. The case Chapter 2 provides a further analysis study company is not intended to be a by PwC of the sub indicators, which representative company, but has been includes a look at the average picture constructed to facilitate a comparison for ease of paying taxes around the of the world’s tax systems on a like-for- world, an assessment of how the like basis. Paying Taxes results have changed over the years and a focus on each Paying Taxes covers both the cost of of the indicators using a sample of taxes which are borne by the case economies and some regional and study company and the administrative economicbcomparisons. burden of tax compliance for the company. Both are important from the Chapter 3 includes a number of business point of view and these are commentaries from PwC rms around measured using three sub indicators: the world which illustrate how this data is being used in practice to the Total Tax Rate, (the cost of all inform and stimulate discussion with taxes borne); governments. These commentaries the time needed to comply with also refer to some of the reforms that the major taxes (pro t taxes, have been and are being implemented labour taxes, and mandatory to address the issues arising in contributions, and consumption suchbdialogues. taxes); and the number of tax payments. * ‘PwC’ refers to the network of member �rms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member �rms of the PwC network. Paying Taxes covers both the cost of taxes which are borne by the case study company and the administrative burden of tax compliance. Paying Taxes and Doing Business As for previous years, the overall paying taxes ranking included in this report continues to use a simple average of the percentile rankings for each of the sub indicators. These rankings are set out in Appendix 4. This year the rankings in this report differ from those used by the World Bank Group in the Doing Business 2012 report where a change of the methodology is being piloted to address a number of issues that have been raised through discussion with various stakeholders. The Doing Business report has applied a threshold to the ranking for the Total Tax Rate to seek to mitigate the effect of low Total Tax Rates on the rankings. Chapter 1 Findings of the World Bank and IFC’s Doing Business 2012 report Imagine a woman named Amina who Doing Business records the taxes owns a manufacturing company in and mandatory contributions that a Morocco. In 2004 she had to make medium-size company must pay in 28 payments and spend more than a given year and also measures the 44 days (358 hours) to comply with administrative burden of paying taxes tax regulations. Today, thanks to and contributions. It does this with changes over the past seven years, her three indicators: payments, time and administrative burden is lighter. The the Total Tax Rate borne by a case government merged many taxes and study rm in a given year. The number eliminated others, and now Amina of payments indicates the frequency needs to make only 17 payments a with which the company has to le year as measured by Doing Business. and pay different types of taxes and A new electronic ling and payment contributions, adjusted for the way in system, now fully implemented, saves which those payments are made. The Amina 15 days a year (120 hours). This time indicator captures the number is time she can invest in developing of hours it takes to prepare, le and her business. “New technology pay three major types of taxes: pro t makes compliance easier and more taxes, consumption taxes, and labour transparent,� said Mahat Chraibi, a taxes and mandatory contributions. partner at PwC Morocco. “This is one The Total Tax Rate measures the example of how technology helps to tax cost borne by the standard rm bridge the development gap.� (Figureb1.1). In 2004 Amina had to make 28 payments and spend more than 44 days (358 hours) to comply with tax regulations. Today, thanks to changes over the past seven years, her administrative burden LVbOLJKWHU Figure 1.1: What are the time, Total Tax Rate and number of payments necessary for a local medium size company to pay all taxes? Total Tax Rate (% of profit before all taxes) Time (hours per year) To prepare, file and pay value added or sales tax, profit tax and labour taxes and contributions Number of payments (per year) With these indicators Doing Business All governments need revenue, but compares tax systems and tracks the challenge is to carefully choose tax reforms around the world from not only the level of tax rates but also the perspective of local businesses, the tax base. Governments also need covering both the direct cost of to design a tax compliance system taxes and the administrative burden that will not discourage taxpayers of complying with them. The from participating. Tax rates and methodology looks at the statutory burdensome tax administration remain incidence of taxes, and includes all a top obstacle to business. Recent rm taxes and contributions that the surveys in 123 economies show that case study rm is obliged to pay. companies consider tax rates to be This does not mean that the entire among the top three constraints to burden falls on the rm; eventually their business, and tax administration the cost is shared among the owners, to be among the top eight.2 Firms in customers, workers and suppliers of economies that rank better on the ease the rm. The indicators do not measure of paying taxes tend to perceive both the scal health of economies, the tax rates and tax administration as less macroeconomic conditions under of an obstacle to business (Figure 1.2). which governments collect revenue or the provision of public services supported by taxation. Why do tax rates and tax Figure 1.2: Tax administration and tax rates perceived as less of an obstacle in administrationbmatter" economies that rank better on the ease of paying taxes Oliver Wendell Holmes, a former U.S. supreme court justice, said, “Taxes are Share of firms perceiving tax administration as an Share of firms perceiving tax rates as an obstacle what we pay for a civilized society.� obstacle to business to business Governments need sustainable High High funding for social programs and public investments to promote economic growth and development. Programs providing health, education, infrastructure and other amenities are important to achieve a common goal of a prosperous, functional and orderly society. And they require that governments raise revenues. This is so even in low-income economies that often receive large amounts of external assistance to help meet their needs. Taxation not only pays for public goods and services; it is a key ingredient of Low Low Easiest Most difficult Easiest Most difficult the social contract between citizens Economies ranked by ease of paying taxes, quintiles Economies ranked by ease of paying taxes, quintiles and the economy and thus key to building effective government. How Note: Relationships are signi�cant at the 1% level and remain signi�cant when controlling for income per capita. Source: Doing Business database; World Bank Enterprise Surveys (2006–10 data). taxes are raised and spent shapes the legitimacy of governments by promoting their accountability to taxpaying citizens and by encouraging effective administration and good public nancial management.1 1 FIAS 2009. “Taxation as State Building: Reforming Tax Systems for Political Stability and Sustainable Economic Growth.� World Bank Group, Washington, DC. 2 Companies ranked 16 obstacles to business in World Bank Group Enterprise Surveys in 2006–10 (http://www.enterprisesurveys.org). Why tax rates matter Keeping tax rates at a reasonable level The size of the tax cost for businesses can encourage the development of the matters for investment and growth. private sector and the formalisation Where taxes are high, businesses are of businesses. This is particularly more inclined to opt out of the formal important for small and medium- sector. A recent study shows that higher size enterprises, which contribute to tax rates are associated with fewer growth and job creation but do not add formal businesses and lower private signi cantly to tax revenue.7 Typical investment. A ten percentage point distributions of tax revenue by rm size increase in the effective corporate for economies in sub-Saharan Africa income tax rate is associated with a and the Middle East and North Africa reduction in the ratio of investment show that micro, small and medium- to GDP of up to two percentage points size enterprises make up more than and a decrease in the business entry 90% of taxpayers but contribute only rate of about one percentage point.3 25–35% of revenue.8 Thus imposing A tax increase equivalent to 1% of high tax costs on businesses of this size GDP reduces output over the next might not add much to government tax three years by nearly 3%.4 Research revenue, but it might cause businesses looking at multinational rms’ to become informal or, in the worst decisions on where to invest suggests case, to never exist at all. that a one percentage point increase in the statutory corporate income tax In Brazil a tax simpli cation scheme rate would reduce the local pro ts for microenterprises (SIMPLES) that The size of the tax from existing investment by 1.3% on average.5 A one percentage point consolidated several taxes, leading to a reduction in the overall tax cost of 8%, cost for businesses increase in the effective corporate resulted in an 11.6% increase in the matters for investment income tax rate reduces the likelihood of establishing a subsidiary in an business licensing rate, a 6.3% increase in the registration of microenterprises and growth economy by 2.9%.6 and a 7.2% increase in the number of rms registered with the tax authority. Pro t taxes are only part of the total Budgetary revenue rose by 7.4% as a business tax cost – less than 36% on result of increased tax payments and average. In República Bolivariana de social security contributions. SIMPLES Venezuela, for example, the nominal was also found to increase the corporate income tax is based on revenues, pro ts, paid employment and a progressive scale of 6–34% of xed capital of formalised rms.9 net income, but the total business tax bill, after taking into account Businesses care about what they get deductions and exemptions, is 63.5% for their taxes. Extensive and ef cient of commercial pro t because of one infrastructure is critical for the sound other pro t tax, four labour taxes functioning of an economy because it and contributions, one sales tax, one plays an important part in determining property tax and three other taxes. the location of economic activity and the kinds of activities or sectors that can develop. A healthy workforce is vital to an economy’s competitiveness and productivity – so investing in the provision of health services is clearly essential for economic as well as moral reasons. Basic education increases the ef ciency of each worker, and good- quality higher education and training allow economies to move up the value chain beyond simple production processes and products. 3 Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer. 2010. “The Effect of Corporate Taxes on Investment and Entrepreneurship.� American Economic Journal: Macroeconomics 2 (3): 31–64. 4 Romer, Christina, and David Romer. 2010. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.� American Economic Review 100: 763–801. 5 Huizinga, Harry, and Luc Laeven. 2008. “International Pro�t Shifting within Multinationals: A Multi-Country Perspective.� Journal of Public Economics 92: 1164–82. 6 Nicodème, Gaëtan. 2008. “Corporate Income Tax and Economic Distortions.� CESifo Working Paper 2477, CESifo Group, Munich. 7 Hibbs, Douglas A., and Violeta Piculescu. 2010. “Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unof�cial Economy.� American Journal of Political Science 54 (1): 18–33. 8 International Tax Dialogue. 2007. “Taxation of Small and Medium Enterprises.� Background paper for the International Tax Dialogue Conference, Buenos Aires, October. 9 Fajnzylber, Pablo, William F. Maloney and Gabriel V. Montes-Rojas. 2011. “Does Formality Improve Micro-Firm Performance? Evidence from the Brazilian SIMPLES Program.� Journal of Development Economics 94 (2): 262–76. But how effectively tax revenue is Figure 1.3: High tax rates do not always lead to high tax revenue or converted into public goods and good public services services varies around the world. Recent data from the World Economic Tax collection (% of GDP) Forum show that in economies such Total Tax Rate (% of profit) as France high tax rates fund high High quality 140 levels of public goods and services such as infrastructure, health, primary education, higher education and training (Figure 1.3). The data 120 show the opposite for economies such as Bolivia and Chad. Economic development often generates 100 additional needs for tax revenue to nance a rise in public spending, but at the same time it requires the economy’s ability to raise revenue to meet these 80 needs. More important than the level of taxation, however, is how revenue is used. In economies such as Canada and 60 Denmark Total Tax Rates are moderate, but the public services provided rank high in a global comparison.10 In developing economies high tax rates 40 and weak tax administration are not the only reasons for low tax collection. The tax base is much narrower because most workers earn very low wages or 20 are in the informal sector. Why tax administration matters 0 Low quality Bahrain Chile Denmark Canada Finland Czech Chad France Bolivia Ef cient tax administration can help Republic encourage businesses to become Quality of infrastructure, health and education Tax collection (% of GDP) Total tax rate (% of profit) formally registered and the economy to grow – and thus expand the tax Note: Quality of infrastructure, health and education refers to the average of the rankings on infrastructure, on health and primary education and on higher education and training as measured by the Global Competitiveness Index base and increase tax revenues. (see http://gcr.weforum.org/gcr2010/). Tax collection covers corporate income, value added and personal income taxes. Source: World Economic Forum 2010; U.S. Agency for International Development, Fiscal Reform and Economic Administration that is unfair and Governance Project (2009 data); Doing Business database. capricious will bring the tax system into disrepute and weaken the legitimacy of government. In many transition economies in the 1990s, failure to improve tax administration when new tax systems were introduced resulted in very uneven imposition of taxes, widespread tax evasion and lower-than-expected revenue.11 10 World Economic Forum. 2010. Global Competitiveness Report 2010–2011. Geneva: World Economic Forum.11. Bird, Richard. 2010. “Smart Tax Administration.� Economic Premise (World Bank Group) 36: 1–5. 11 Bird, Richard. 2010. “Smart Tax Administration.� Economic Premise (World Bank) 36: 1–5. Compliance with tax laws is important Figure 1.4: Who makes paying taxes easy and who does not – and where is the to keep the system working for all Total Tax Rate highest? and to support the programs and Payments (number per year) services that improve lives. One way Fewest Most to encourage compliance is to keep the Hong Kong SAR, China 3 Senegal 59 rules as clear and simple as possible. Maldives 3 Congo, Rep. 61 Overly complicated tax systems are Qatar 3 Côte d'Ivoire 62 associated with high evasion. High Georgia 4 Serbia 66 tax compliance costs are associated Norway 4 Tajikistan 69 with larger informal sectors, more Sweden 4 Venezuela, RB 70 corruption and less investment. Singapore 5 Sri Lanka 71 Economies with simple, well-designed Bhutan 6 Jamaica 72 tax systems are able to help the growth Mexico 6 Romania 113 of businesses and, ultimately, the Timor-Leste 6 Ukraine 135 growth of overall investment and employment.12 Time (hours per year) Fastest Slowest Low tax compliance cost and ef cient Maldives 0a Cameroon 654 procedures can make a big difference United Arab Emirates 12 Ukraine 657 for rms. In Hong Kong SAR, China, Bahrain 36 Senegal 666 for example, the standard case study Qatar 36 Mauritania 696 rm would have to make only three payments a year, the lowest number Bahamas, The 58 Chad 732 of payments globally (Figure 1.4). Luxembourg 59 Venezuela, RB 864 In Singapore it would have to make Oman 62 Nigeria 938 Switzerland 63 Vietnam 941 ve payments, still among the lowest Ireland 76 Bolivia 1,080 requirements in the world. In Ireland, Seychelles 76 Brazil 2,600 complying with pro t tax, value added tax, and labour taxes and contributions takes only 76 hours a year, less than Total Tax Rate (% of pro�t) ten working days. These numbers are Highest among the reasons that these three Colombia 74.8 economies rank among the top ten. Bolivia 80.0 Tajikistan 84.5 Recent research found that it takes the Eritrea 84.5 Doing Business case study company Uzbekistan 97.5 longer on average to comply with Sri Lanka 105.2b value added tax than to comply with Argentina 108.2b corporate income tax. But the time Comoros 217.9b it takes the company to comply with Gambia, The 283.5b value added tax requirements varies Congo, Dem. Rep. 339.7b widely, and the research shows Note: The indicator on payments is adjusted for the possibility of electronic or joint �ling and payment when used by the that differences in administrative majority of �rms in an economy. See the data notes for more details. practices and in how value added tax is a In Maldives, where the hotel and tourism industry provides most tax revenue, the 3 major types of taxes covered by the time indicator do not exist. implemented are key reasons for this. b Where the data show that taxes exceed pro�t, the company must apply a price markup of more than 120% of the cost of goods sold to pay its taxes under the assumptions of the Doing Business case study. See the data notes for more details. Compliance tends to take less time in Source: Doing Business database. economies where value added tax is administered by the same tax authority as the one that deals with corporate income tax. The use of online ling and payment greatly reduces compliance time. The frequency and length of value added tax returns also matter. Requirements to submit invoices or other documentation with the returns add to compliance time. Streamlining the compliance process and reducing the time needed to comply is important for value added tax systems to workbef ciently.13 12 Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer. 2010. “The Effect of Corporate Taxes on Investment and Entrepreneurship.� American Economic Journal: Macroeconomics 2 (3): 31–64. 13 Symons, Susan, Neville Howlett and Katia Ramirez Alcantara. 2010. The Impact of VAT Compliance on Business. London: PwC. Figure 1.5: Eastern Europe and Central Asia has biggest reduction in Total Regulatory reforms and Tax Rates global good practices In the past seven years more than 60% Middle East of the 183 economies covered by Doing 11.2 16.9 4.0 14.2 & North Africa Business implemented changes aimed East Asia & Pacific 16.8 10.7 6.9 4.2 at simplifying tax administration Eastern Europe 9.3 21.7 9.5 15.3 and reducing the tax burden – 244 & Central Asia such reforms in all. In 2010/11, 33 OECD high income 15.5 24.0 3.2 4.9 economies made it easier to pay taxes South Asia 18.6 7.7 18.2 or reduced tax rates. Introducing Latin America electronic systems to make compliance & Caribbean 19.9 14.6 13.2 2.4 Sub-Saharan Africa easier was the most common feature of 18.1 13.5 25.5 13.6 tax reform for the rst time since 2004. 0% 80% Profit tax Labour tax Other Total Tax Rate reduction, 2004-10 Over the past seven years the most common features were reducing tax rates, introducing electronic systems Note: The increase in the average Total Tax Rate in the South Asia region is driven by one major reform in one economy that increased the Total Tax Rate in 2010 by 48.4 percentage points between 2004 and 2010. Without this outlier, the and simplifying tax compliance by average Total Tax Rate for the region would be 38.4%. The data sample for DB2006 (2004) includes 174 economies. reducing the frequency of ling or The sample for DB2012 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. allowing joint payment and ling of Source: Doing Business database. several taxes. Reducing tax rates The Total Tax Rate measures the burden of all the taxes that a company must pay in relation to its commercial pro t. Thus all kinds of taxes that impose a cost on the rm are considered: pro t taxes, property taxes, labour taxes and mandatory contributions paid by the employer, certain sales taxes, and other payments that do not require ling, such as property transfer taxes, stamp duties, dividend tax, capital gains tax, nancial transactions tax, environmental tax, and vehicle and road tax. Globally, the average Total Tax Rate is 44.8% of pro t. For the 174 economies included in the sample in Doing Business 2006, the average is 7.4 percentage points lower than it was seven years ago (Figure 1.5). This reduction re ects the 133 reductions of pro t tax rates by two or more percentage points recorded by Doing Business in the past seven years – including those in eight economies in 2010/11. These eight economies, most of which had statutory tax rates of more than 30% on companies’ pro t, had an average Total Tax Rate of 75.3% before these reductions. Until 2010/11 reducing pro t tax rates was the most common feature of tax reform globally. Economies in Eastern Europe and Central Asia, and OECD high-income economies reduced pro t tax rates the most, followed by sub-Saharan Africa. Labour taxes and government- Figure 1.6: In most economies employers pay a larger share of mandated contributions paid by the social security contributions employer account on average for 36.2% of the Total Tax Rate in the 183 economies covered by Doing Business. Economies where employers and employees pay the same share (5%) In some economies the statutory incidence of labour taxes falls on the Economies where employees employee rather than the employer. pay the most (12%) This case is beyond the scope of the Doing Business analysis and is not Economies where employers captured by any of the paying taxes pay the most (83%) indicators. Twelve economies do not require the payment of any social security contributions or labour taxes – Afghanistan, Bangladesh, Botswana, the Comoros, Eritrea, Ethiopia, Georgia, Lesotho, Maldives, Note: Includes 171 economies that levy labour taxes or social security contributions. Personal income tax is not included. Source: Doing Business database. Timor-Leste, Tonga, and West Bank and Gaza.14 But the other 171 economies studied (93.4% of the total) collect some form of social security contributions, paid by the employer, the employee or both. In nine economies – Brunei Darussalam; Hong Kong SAR, China; Kiribati; Kosovo; the Federated States of Micronesia; Palau; Serbia; St. Lucia; and Vanuatu – the employee and employer pay the same share of social security contributions, while in 20 economies the employee pays a higher share than the employer (Figure 1.6). In ve economies taxes and mandatory contributions for the standard case study rm add up to more than 100% of pro t, ranging from 105.2% to 339.7% (see Figure 1.4). Doing Business assumes that the case study rm has a gross margin of 20%.15 Because taxes are calculated on the gross amount, the size of the margin directly affects the ratio. For example, in the Democratic Republic of Congo, where the Total Tax Rate equals 339.7%, the company would have to have a gross pro t margin of 30% to be able to meet its taxbliability.16 14 This does not include personal income tax; it includes only labour taxes and social security contributions mandated in addition to any personal income tax. 15 That is, sales are 120% of the costs of goods sold. 16 Here, gross pro�t margin refers to sales minus costs divided by sales, where the sales have been adjusted to a level at which the case study company’s pro�t in the Democratic Republic of Congo would exceed the amount of taxes due. Given the original assumption in the case study of a gross margin of 20%, or 120% of the costs of goods sold, in the Democratic Republic of Congo sales would have to be 142% of the costs of goods sold for the case study company to be able to meet its tax obligation. Making tax compliance easier Figure 1.7: Administrative burden eased the most in Eastern Europe and Complying with tax regulations takes Central Asia 29 payments and 277 hours a year on average. This re ects improvements, Payments (number per year) with tax compliance taking ve 13 OECD high income payments and 46 hours fewer today 16 than it did seven years ago (Figureb1.7). Middle East 21 & North Africa 24 And making the process easier 25 6 continues to be a concern. In 2010/11, East Asia & Pacific 25 27 23 economies made compliance easier, by introducing or enhancing electronic 28 South Asia systems, simplifying tax compliance 29 or merging or eliminating some taxes Latin America 32 (Figure 1.8). Eleven of these did so & Carribean 40 as part of ongoing reforms that had 37 begun in 2009 or earlier. For example, Sub-Saharan Africa 38 Doing Business has recorded reforms easing tax compliance in Mexico every Eastern Europe 37 & Central Asia 52 year since 2005/06. In 2010 Mexico continued to reduce the administrative 0 payments burden on businesses by eliminating Doing Business global average – 29 payments some ling requirements for rms, including the obligation to le yearly Time (hours per year) value added tax returns. 186 OECD high income 235 2ffering electronic ling Middle East 188 andbpayment & North Africa 223 An electronic system for ling and 25 6 paying taxes, if implemented well East Asia & Pacific 215 292 and used by most taxpayers, bene ts both tax authorities and rms. For 281 South Asia tax authorities, electronic ling 305 lightens the workload and reduces Latin America 382 operational costs – such as the costs of & Carribean 415 processing, storing and handling tax 318 returns. At the same time, it increases Sub-Saharan Africa 343 tax compliance and saves time. For taxpayers, electronic ling saves Eastern Europe 302 & Central Asia 448 time by reducing calculation errors on tax returns and making it easier 0 hours to prepare, le and pay taxes.17 And Doing Business global average – 277 hours both sides bene t from a reduction DB2012 DB2006 in potential incidents of corruption, which are more likely to occur with Note: The data sample for DB2006 (2004) includes 174 economies. The sample for DB2012 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 more frequent contact with tax economies. DB2006 data are adjusted for any data revisions and changes in methodology and regional classi�cations administration staff.18 of economies. Source: Doing Business database. 17 Che Azmi and Kamarulzaman 2010. Che Azmi, Anna, and Yusniza Kamarulzaman. 2010. “Adoption of Tax E-�ling: A Conceptual Paper.� African Journal of Business Management 4 (5): 599–603. 18 James, Sebastian. 2009. A Handbook for Tax Simpli�cation. Washington, DC: International Finance Corporation. Available at http://ssrn.com/abstract=1535499. Rolling out an electronic ling and Figure 1.8: Who made paying taxes easier and lowered the tax burden in 2010/11 payment system and educating – and what did they do? taxpayers in its use are not easy tasks Feature Economies Some highlights for a government. The necessary Easing Introduced Armenia, Belarus, Colombia established mandatory infrastructure must be put into place, compliance or enhanced Belize, Colombia, Costa electronic �ling and payment for especially where not all citizens electronic Rica, Georgia, India, major taxes, including corporate systems Republic of Korea, income tax and value added tax. have broadband access. Consider the Morocco, Nicaragua, example of India, where the Central Peru Board of Direct Taxes took a series of Simpli�ed tax Armenia, Belarus, Burundi reduced the frequency steps to ensure a smooth process: compliance Burundi, Finland, of payment for social security process Georgia, Mexico, contributions from monthly to Publishing detailed help manuals Montenegro, Romania, quarterly. Rwanda on the forms and how to complete them on its website. Merged or Belarus, Canada, Côte d'Ivoire retired the Providing free, downloadable eliminated Côte d'Ivoire, Iceland, contribution for national taxes other Republic of Korea, reconstruction, a tax it had software for preparing tax returns than pro�t tax Montenegro, Romania, established 5 years before. on its website. Seychelles, Sri Lanka, Organising, in collaboration Ukraine with the Institute of Chartered Reducing Reduced pro�t Canada, The Gambia, New Zealand's 2010/11 budget Accountants of India, live phone- tax rates tax rate by two Greece, New Zealand, reduced its corporate income tax in question-and-answer sessions percentage Sri Lanka, Togo, rate from 30% to 28%. points or more Ukraine, Republic withbaccountants. of Yemen Distributing CDs with software and help content to accountants, Reduced New Zealand, Turkey Turkey lowered its social security labour contribution rate from 19.5% to trade bodies, and professional and taxes and 14.5% by offering a 5% rebate business associations through tax mandatory to companies complying with of ces throughout India. contributions all their social security �ling and payment liabilities by Setting up help centres at all eld the deadlines. of ce headquarters. Organising meetings and Introducing Introduced Belarus, Czech The Czech Republic revised new systems new or Republic, Oman, its tax legislation to simplify seminars with taxpayers and substantially Ukraine, Republic provisions relating to taxbpractitioners. revised of Yemen administrative procedures Answering taxpayers’ queries by tax law and relationships between tax authorities and taxpayers. phone and e-mail at the call centre. Introduced Democratic Republic The Democratic Republic of India is far from the only one to change in of Congo, St. Kitts Congo replaced its sales tax with cascading and Nevis a value added tax. undertake the challenging process sales tax of introducing an electronic option. Source: Doing Business database. By 2010, 66 economies had fully implemented electronic ling and payment of taxes. Twenty of them adopted the system in the past seven years. Ten OECD high income economies have made electronic ling and payment mandatory. And this trend is likely to continue. In the next few years many other OECD high- income economies, having introduced requirements for electronic ling and payment for larger businesses, plan to extend them to smaller ones.19 19 World Bank Group, Investment Climate Advisory Services, Global Tax Team. Electronic ling and payment of Forty-nine economies have one tax per taxes has made a big difference for tax base for taxes measured by Doing businesses in some economies in Latin Business (Figure 1.9). This keeps things America and the Caribbean. Belize, simple. Having more types of taxes Colombia, Costa Rica and Nicaragua requires more interaction between had made online ling and payment businesses and tax agencies. It also available since the beginning of complicates tax compliance. In 17 2000. But the new systems were fully economies businesses must prepare implemented only in 2010 because one return for corporate income tax taxpayers needed time to get used and another for an additional tax on to them. The biggest improvements: pro t. In India, Lesotho, SÂo TomÒ and Nicaragua reduced the number of Príncipe, South Africa and Ukraine, payments by 22 and compliance besides the pro t tax, companies are time by 15 hours, and Costa Rica cut subject to a tax levied on dividends payments by 11 and time by 26 hours. distributed to shareholders. Companies saw similar improvements Figure 1.9: Good practices around the world in making it easy to pay taxes in the ease of tax compliance in Georgia, where most were able to take Practice Economiesa Examples advantage of the electronic system Allowing self- 145 Argentina, Canada, China, Arab Republic of Egypt, only recently. India made paying assessment Rwanda, Sri Lanka, Turkey taxes easier by introducing electronic Allowing electronic 66 Australia, Colombia, India, Lithuania, Mauritius, ling for the state value added tax in �ling and payment Singapore, Tunisia 2010. This lowered the total number Having one tax per 49 Hong Kong SAR, China; FYR Macedonia; Morocco; of payments from 56 to 33. Unlike tax base Namibia; Paraguay; United Kingdom the Latin American economies, India made electronic ling and payment a Among 183 economies surveyed. Source: Doing Business database. mandatory, phasing in the change over time – rst for corporate income tax, in 2006, then for the federal value added tax, in 2009. Keeping it simple: one tax base, onebtax Some 235 years after Adam Smith proclaimed simplicity to be one of the pillars of the effective tax system,20 multiple taxation – where the same tax base is subject to more than one tax treatment – appears to be making tax compliance inconvenient and cumbersome for taxpayers in many economies. Multiple taxation increases the cost of doing business for rms because it increases the number of payments they must make and frequently the compliance time as well. Different forms have to be lled out, often requiring different methods for calculating the tax. In Haiti, for example, the case study business is subject to the local tax on pro t in addition to the corporate income tax. Multiple taxation also complicates tax administration for tax authorities and increases the cost of revenue administration for governments. And it risks damaging investor con dence in an economy. 20 Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Facsimile of the 1st ed. Amherst, NY: Prometheus Books, 1991. Businesses in the Republic of Korea Adopting self-assessment as an no longer need to calculate numerous effective tool for tax collection taxes on the same base. Starting with Driven by a desire to reduce the 2010 tax year, property taxes and administrative costs for tax authorities city planning taxes are being merged and aided by modern technology, with other taxes. And thanks to an most economies have adopted the effort aimed at unifying social security principle of self-assessment. Taxpayers laws and administration, businesses determine their own liability under the can now le and pay four labour taxes law and pay the correct amount. For and contributions jointly. This freed governments, the computer system and them from the requirement to le software for self-assessment, if they additional returns and bear additional function well, ensure effective quality tax compliance costs. control. Self-assessment systems generally make it possible to collect Canada continued efforts to harmonise taxes earlier and reduce the likelihood and simplify its tax system. After of disputes over tax assessments.21 harmonising federal and provincial They also lessen the discretionary pro t taxes beginning in the 2009 tax powers of tax of cials and reduce In the past seven year, the country uni ed federal and opportunities for corruption.22 To be years 40 economies municipal sales taxes in Ontario and effective, however, self-assessment British Columbia, lessening the tax needs to be properly introduced and eliminated and compliance burden. Beginning in the implemented, with transparent rules, merged some taxes 2010 tax year businesses are subject an automated reporting process, only to the federal harmonised sales penalties for noncompliance and to simplify tax tax, which replaces the former federal risk assessment procedures for compliance and goods and services tax and provincial auditbprocesses. sales tax. The harmonisation creates UHGXFH FRVWV IRU UPV a tax regime that is easy to administer Economies that have introduced their and easy to comply with. tax system recently or undertaken major revision of their tax regulations In the past seven years 40 economies have tended to adopt self-assessment eliminated and merged some taxes to principles. These include all economies simplify tax compliance and reduce in Eastern Europe and Central Asia costs for rms. Another way to make and almost two-thirds in East Asia and compliance easier when rms are the Paci c, the Middle East and North subject to numerous taxes is to allow Africa, and South Asia. joint ling and payment of taxes levied on the same base. Firms in Colombia face four different taxes on salaries – but can meet these tax obligations by ling one form and making one payment. In most OECD high-income economies taxes levied on the same base are paid and led jointly, and as a result the average number of payments across all economies in this group is only 13. Compare this with the average of 29 payments across all 183 economies covered by Doing Business. Joint ling and payment of taxes is not widespread in Latin America and the Caribbean, where the average is 32 payments, or in Sub-Saharan Africa, where the average is 37. Seventy-two economies allow rms to le and pay several taxes jointly, greatly reducing the time they must spend to comply with these taxes. 21 OECD Forum on Tax Administration. 2011. Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010). Paris: OECD. 22 Imam, Patrick A., and Davina F. Jacobs. 2007. “Effect of Corruption on Tax Revenues in the Middle East.� IMF Working Paper WP/07/270, International Monetary Fund, Washington, DC. Chapter 2 PwC commentary A fair, sustainable tax system – how can governments create an environment that fosters business investment and economic growth? The private sector plays an essential Following the downturn there is role in contributing to economic also an increased focus on the role growth and prosperity. Companies that tax can play in international contribute to socio-economic development. Tax revenues would be development by employing workers, a more sustainable source of nancing improving the skills and knowledge for developing countries which are base, buying from local suppliers currently reliant on debt or aid. and providing products and services However our analysis of these results that improve people’s lives. They also shows that tax rates tend to be higher contribute to government revenues and the compliance burden heavier in through paying and generating the lower income economies. Paying taxes. The impact that tax systems taxes is often easier for companies in have on companies is important high income economies, which tend and governments should continue to have mature tax systems and more to develop tax systems which foster streamlined compliance processes. business investment and economic Reforming the tax system, by ensuring growth. This is particularly important rates are at a reasonable level and at present following the nancial crisis making it easier to pay, will encourage and a global recession, as governments local businesses to register and pay around the world are looking to the their taxes and can help developing private sector as the engine for a return country governments increase their to economic growth. taxbrevenues. Reforming the tax system, by ensuring rates are at a reasonable level and making it easier to pay, will encourage local businesses to register and pay their taxes and can help developing country JRYHUQPHQWV LQFUHDVH WKHLU WD[bUHYHQXHV The downward trend in the Paying Taxes results has been driven by many successful tax reforms showing that improving the tax system for business is high on JRYHUQPHQWV bDJHQGD The Paying Taxes study looks at tax The Paying Taxes study measures Levying tax is not an easy task for systems from the business perspective. three aspects of the tax system for governments, and there is no single The tax system is an important element business – one relating to the tax cost model for the best tax system. of governments’ regulatory framework (the Total Tax Rate) and two to the Governments need to ensure that their for the private sector and can be seen compliance burden (the time spent tax system supports their economic as a barrier to doing business. The on tax compliance, and the number and social objectives, helping to World Bank Group has carried out of tax payments). The administrative create economic prosperity and Enterprise surveys in more than a burden and cost of complying with stability, enabling them to provide the hundred countries over a number of taxes is important from the business services required by their populations. years. These show that the business perspective, as well as the rate of Developing tax policy which supports community everywhere in the world tax paid. Our analysis shows that government policy is very important; cares deeply about the tax system. In different administrative practices how the policy is administered is a survey by PwC,25 chief executive used by government play a key role in critical to ensure that tax laws are of cers around the world identi ed lowering or increasing the compliance properly implemented, and to allow the tax system, along with labour burden. We continue to suggest that taxpayers to meet their obligations laws, as the areas of regulation they this area should receive even more easily. Paying Taxes provides a wealth would most like their government attention going forward. Easing of data on how the tax system impacts to improve. Our analysis shows that the compliance burden to make tax business; and enables governments to during the seven years that this study collection more ef cient brings bene ts benchmark aspects of their tax system has been undertaken, paying taxes has for both government and business. on a like for like basis with peer groups become easier with a steady reduction The less time business spends on tax ofbeconomies. in the results for all three indicators. compliance the more time it has to The downward trend in the Paying focus on building the business and The purpose of the Paying Taxes study Taxes results has been driven by many contributing to economic growth. is to provide data to inform discussion successful tax reforms showing that At a time of pressure on government of tax policy and tax administration, improving the tax system for business budgets it may be dif cult to reduce tax and to encourage dialogue on tax is high on governments’ agenda. rates. However, governments can do reform. Every year the results generate Around the world governments have much to reduce the burden on business great interest and are discussed with reduced tax rates, reformed their tax by simplifying administration. governments, business and other rules, simpli ed the process for ling stakeholders around the world. In and paying taxes and introduced Companies pay and generate chapter 3 we again provide feedback online systems. This has resulted in many different taxes. As well as from a number of countries showing an average improvement on all three corporate income tax on pro ts, these how the results are being used. Paying Taxes indicators of around 16%. include employment taxes, social However there is still a wide range of contributions, indirect taxes and The Paying Taxes study is unique results and for some economies paying property taxes. The Paying Taxes for a number of reasons, such as the taxes has not become easier, and in results show on average that more than large number of economies included, some cases has become worse. nine taxes are paid around the world, the breath of the taxes covered, the with corporate income tax representing focus on both tax cost and compliance just 12% of tax payments, 25% of the burden, and the time series from the time spent on tax compliance and 36% six years of the study. In this section of the tax cost. When considering how we provide a PwC commentary on the the tax system impacts business, and results for 2012, to highlight a number what companies contribute into the of themes, and assist readers in how to public nances, it is important to look use the results. at all of the taxes and contributions that companies pay. 25 12th Annual Global CEO survey – Rede�ning Success – published by PwC in 2009. The average picture for the Figure 2.1: The global average result for each indicator ease of paying taxes around Total Time to Number of the world Tax type Tax Rate comply payments Figure 2.1 shows the global average Pro�t taxes 16.0% 70 3.4 result for each of the Paying Taxes Labour taxes & contributions 16.2% 99 11.5 indicators, and also shows the range of Other/Consumption taxes 12.6% 108 13.6 results across the 183 economies in the Total 44.8% 277 28.5 study. On average, around the world Minimum 0.2% 0 3.0 our case study company makes 28.5 Maximum 339.7% 2600 135.0 tax payments in a year, takes 277 hours Note: The table shows the average results for all economies in the study. to comply with its tax affairs (or nearly Source: Doing Business database seven weeks on a 40-hour week), and has a tax cost (Total Tax Rate) of 44.8% of its commercial pro ts. Figure 2.2: Corporate income tax is only part of the burden Paying taxes has got easier in the last year (average result in Paying Taxes 2011, 29.9 tax payments, 282 hours to Payments 12% On average corporate income tax accounts for comply, and a Total Tax Rate of 47.8%). only 12% of the tax payments made by the case study company, 25% of the time spent on tax Further discussion of the downward Other taxes Profit taxes compliance, and 36% of the tax cost (48%) (12%) trend in results over the years of the Paying Taxes studies is on page 28. Figure 2.1 also breaks down the global average results by type of tax. A consistent message from the Paying Labour taxes Taxes study is that corporate income (40%) tax is only part of the tax burden on business. Figure 2.2 shows that on average corporate income tax accounts for only 12% of the tax payments made Time 25% Total Tax Rate 36% by the case study company, 25% of Other taxes Profit taxes Other taxes Profit taxes the time spent on tax compliance, and (39%) (25%) (28%) (36%) 36% of the tax cost. These percentages have hardly moved over the years of the Paying Taxes studies. When considering tax reform, it is important that governments look at all the taxes that companies pay. Labour taxes Labour taxes (36%) (36%) On average, around the world the case Note: The chart shows the average results for all economies in the study. study company pays 9.3 different taxes, Source: PwC analysis including taxes on pro t, labour taxes and social contributions, consumption tax, property taxes, and others. Further information on the different taxes that have to be paid around the world is on page 45. Figure 2.3 shows how all the different Figure 2.3: How different taxes impact on the results – Rwanda taxes that have to be paid contribute Tax Total Tax Rate Number of payments Time to comply to the results, using Rwanda as an Corporate income tax 21.2% 5 22 example. In Rwanda, our company Social security contributions 3.4% 4 48 pays nine different taxes. Corporate Accident insurance 2.3% 0 - income tax (21.2%), the business Value added tax (VAT) - 4 78 license (3.1%), social security (3.4%), Business license 3.1% 1 - and accident insurance contributions Property tax 0.2% 1 - levied on the employer (2.3%), are the Property transfer tax 0.1% 1 - largest elements of the tax cost (Total Vehicle tax 0.5% 1 - Tax Rate 31.3%). Value Added Tax Fuel tax 0.5% 1 - (VAT) is not a cost to the case study Total 31.3% 18 148 company, but does add signi cantly to Note: This table is an illustration of the impact of the different taxes on the results using Rwanda. the compliance burden. VAT accounts Source: Doing Business database for 53% of the hours to comply and 22% of the tax payments. Figure 2.4: The three indicators measure different aspects of the tax system – The Paying Taxes study measures Albania and Sweden three separate aspects of paying taxes. Albania Sweden World average Two of the indicators relate to the tax Total Tax Rate 38.5% 52.8% 44.8% compliance burden, and one to the Time to comply 371 122 277 tax cost. It is important to look at each Tax payments 44 4 28.5 Paying Taxes indicator separately as Note: This table compares the results for Albania and Sweden with the world average. they measure different aspects of the Source: Doing Business database tax system. Figure 2.4 compares two economies with contrasting results, Albania and Sweden. Taxes are high in Sweden, providing for high quality social services and re ecting a good standard of living for citizens. But it is easy to pay taxes in Sweden, resulting in less compliance time and fewer tax payments for our case study company. The Total Tax Rate in Albania is below the world average, but it is a more dif cult compliance environment, with more hours needed for tax compliance and more tax payments. Which economies have Figure 2.5: Which economies have good results in the Paying Taxes study? good results in the Paying Number of Total Tax Time to Number of Online Taxesbstudy" Economy taxes Rate comply payments systems The purpose of the Paying Taxes Singapore 5 27.1% 84 5 9 study is to benchmark the world’s Ireland 9 26.3% 76 8 9 tax systems from the perspective of Mauritius 8 25.0% 161 7 9 a company paying taxes. It is unique Canada 11 28.8% 131 8 9 in that it covers all the different taxes Kazakhstan 8 28.6% 188 7 9 paid and looks at both the cost and United Kingdom 8 37.3% 110 8 9 the compliance burden. Governments Norway 4 41.6% 87 4 9 around the world have consistently Finland 9 39.0% 93 8 9 shown great interest in the results of the study as it enables them to make Note: This table shows the Paying Taxes results for selected economies together with other key information. Source: PwC analysis comparisons with their geographic neighbours, and with economic peer groups, and to identify best practice. Figure 2.5 is a list of some of the VAT is the predominant form of economies that do well in Paying Taxes consumption tax and is used in 83% 2012, with their indicator results of the economies. Economies at the and other key information. These are top of the rankings that do not have a economies at the top of the rankings VAT include Hong Kong SAR, China, for the overall paying taxes ranking. Seychelles, and several economies They all have similar features in their in the Middle East. These are also tax systems and could potentially offer excluded from the list. For a discussion a model for other economies. of the impact of VAT on the compliance burden, see page 41. The eight economies in Figure 2.5 all levy the three main taxes in the fact Economies at the top of the rankings pattern of our case study company – that do not levy an employer social corporate income tax, employer social contribution on the case study contributions, and VAT. The social company include Macedonia and contributions levied on the employer Botswana. Some economies also levy are between 40% and 80% of the most of their social contributions from total amount levied on employer and the employee, for example Denmark, employee combined. They also all have where 28% of social contributions are online systems for our company to le levied on the employer and 72% on the and pay its tax. employee. These economies also do not feature in the list. For a discussion The economies that do well in of how employer social contributions the Paying Taxes study include increase the tax cost, see page 35. Singapore, Ireland, Mauritius, Canada, Kazakhstan, UK, Norway, and Finland. Sixty six economies in the Paying Taxes study have online systems for Corporate income tax is a common our company to le and pay its tax. tax around the world and is levied See page 47 for a discussion about on our case study company in 95% how online systems make paying of economies. Several economies at taxesbeasier. the top of the rankings do not levy corporate income tax in the fact pattern of the case study company and are therefore excluded from the list. They include The Maldives, Qatar, the United Arab Emirates, and Timor- Leste. For a discussion of corporate income tax and why the statutory rate is often not a good measure of the rate paid, see page 33. How have the Paying Figure 2.6: The global average results – Paying Taxes 2006 and 2012 Taxes results changed over Total Tax Rate Time to comply Number of payments thebyears" 2012 2006 Change 2012 2006 Change 2012 2006 Change In the years that the Paying Taxes Pro�t taxes 16.0% 19.4% -3.4% 70 86 -16 3.4 4.1 -0.7 study has been carried out there has Labour taxes 16.2% 17.5% -1.3% 99 120 -21 11.5 13.1 -1.6 been a trend to a lower tax burden & contributions on business. Figure 2.6 compares the Other/ 12.6% 16.4% -3.8% 108 125 -17 13.6 16.0 -2.4 global average results this year (2012) Consumption taxes with those measured in the rst study Total 44.8% 53.3% -8.5% 277 331 -54 28.5 33.2 -4.7 six years ago (Paying Taxes 2006). The average Total Tax Rate has fallen by 8.5% (more than 1% for each year); the time to comply by 54 hours (more than a day a year); and the number of 2006 8.5% 54 hours 4.7 fewer payments by 4.7. There are reductions saved saved payments in all types of taxes across all of the 16% 16% 14% three Paying Taxes indicators. Tax reforms around the world have driven this downward trend. The Doing Business project tracks tax reform and Figure 2.7 summarises their ndings. 2012 Since the study began, there have been 133 signi cant reductions in the statutory rate of corporate income tax (CIT). Rates of labour tax and social contributions have been reduced 38 times. There have been 47 taxes eliminated and the introduction of VAT Total Tax Rate Time to comply Number of payments in 15 economies have also contributed Note: The table and chart show the global average result in 2012 compared to 2006 and the degree of change. 26 to the fall in the average Total Source: Doing Business database TaxbRate. Elimination of multiple taxes per Figure 2.7: Tax reforms around the world have driven a downward trend in base (49 economies now have one tax the results per base) and simpli ed processes Type of reform Number of reforms for paying taxes (45 economies have Reduction in CIT rate 133 revised their tax code) have helped to Reduced rates of labour taxes and social contributions 38 reduce the time to comply. The fall in Elimination of taxes 47 the number of payments re ects the VAT introduced 15 positive impact of electronic le and Simpli�ed process for paying taxes 40 pay systems, introduced or enhanced Revised tax code 45 in 48 economies, compared to six Electronic systems 48 yearsbago. Note: The table shows the number of economies which have implemented certain types of tax reform. Source: Doing Business database The Netherlands is a good example of an economy where there has been a strong government focus on reform Figure 2.8: Paying Taxes in The Netherlands and easing the compliance burden. 2012 2006 Figure 2.8 compares the results for Total Tax Rate 40.5% 48.5% The Netherlands in Paying Taxes 2012 Number of hours 127 250 and 2006. Reforms have included Number of payments 9 20 simplifying the rules for computing Note: This table shows the results for The Netherlands in 2012 compared to 2006. corporate income tax and ling tax Source: Doing Business database returns, quarterly ling of VAT returns to assist companies’ cash ow, and common de nitions for calculating the wage withholding tax and socialbcontributions. 26 The changes/trends quoted in this table, and generally in Chapter 2, reflect the movement in the global averages for all economies included in each study for 2006 and 2011. There are eight more economies in the 2011 study than in the 2006 study. The trends referred to in Chapter 1, are calculated on the basis of only the economies that were included in both studies. Paying taxes is easiest in Good tax systems can help to meet high income economies the Millennium Development High income economies tend Goals.27 Today there is an increased unsurprisingly to have better results focus on the role that tax can play in the Paying Taxes study. The World in international development. It is Bank Group’s Development Indicators26 clear that tax revenues are a more categorises the paying taxes economies sustainable source of nancing for into four income levels – high income developing countries than debt or aid. (47 economies), upper middle income Developing countries need to be able (50), lower middle (54), and low to raise their own tax revenues to fund income (32). Figure 2.9 shows that 83% the services they provide, and to show of the high income economies have an citizens that there is a link between overall paying taxes ranking in the rst the tax they pay and the services they or second highest quartile, compared receive in return. to 22% of the low income economies. But there are many challenges to Figure 2.10 shows that in high income tackle in increasing tax revenues economies, on average the model in developing countries, including company makes fewer tax payments, combating capital ight, reducing needs less time to comply with its tax the size of their informal economies affairs, and has a lower tax cost. and helping their tax authorities to monitor compliance and collect taxes The compliance burden is easier for due. The Paying Taxes results show our company in the high income that tax rates tend to be higher and the economies. In high income economies compliance heavier in the developing it makes 15.2 payments on average world. Reducing tax rates, broadening and needs 168 hours to comply with the base and making it easy to pay, the main taxes. This compares to can be important in encouraging local 38.3 payments and 271 hours in business to register and pay their taxes. the low income economies. High income economies tend to have more mature tax systems, with streamlined compliance processes and electronicbsystems. The tax cost for our company is also heavier in the low income economies. The average Total Tax Rate is 67.8% compared to 37.4% in high income economies. Taxes on pro t are higher (18.7% compared to 13%) as well as other taxes (36.1% compared to 4.2%). However, labour taxes and social 83% contributions are higher in the high 83% of the high income income economies (20.2% compared to economies have an overall 13% in the low income economies). paying taxes ranking in the �rst or second It is important to stress that the highest quartile... lowest tax cost is not necessarily the best model. Taxes provide essential government revenue and business has an important role as a taxpayer. What is important is that the tax system supports business investment, economic growth, and social well-being. Higher taxes should ...compared to 22% of the low income economies 22% ow through to a stable business environment, good infrastructure, and a better quality of life for citizens. 26 http://data.worldbank.org/about/country-classi�cations 27 UN Millennium Goals: end poverty and hunger, universal education, gender equality, child health, maternal health, combat HIV/AIDS, environmental sustainability, global partnership http://www.un.org//millenniumgoals/ Figure 2.9: The overall paying taxes rankings for high and low income economies High income economies Low income economies 4th Quartile (2%) 1st Quartile (6%) 3rd Quartile (15%) 1st Quartile (49%) 2nd Quartile (16%) 4th Quartile (41%) 2nd Quartile (34%) 3rd Quartile (37%) Note: This chart shows percentage of high income and low income economies in each quartile of the ranking for the overall paying taxes ranking. Source: PwC analysis Figure 2.10: The Paying Taxes indicators – average results for high and low income economies Total Tax Rate High Income 13.0 20.2 4.2 37.4 World average 16.0 16.2 12.6 44.8 Low Income 18.7 13.0 36.1 67.8 0% 75% Profits taxes Labour taxes Consumption/other taxes Time to comply High Income 51.0 69.0 48.0 168.0 World average 70.0 99.0 108.0 277.0 Low Income 65.0 91.0 115.0 271.0 0 hours 300 hours Profits taxes Labour taxes Consumption/other taxes Number of payments High Income 1.8 6.5 6.9 15.2 World average 3.4 11.5 13.6 28.5 Low Income 4.3 13.8 20.2 38.3 0 payments 40 payments Profits taxes Labour taxes Consumption/other taxes Note: The chart compares the average result for the Total Tax Rate, time to comply and number of payments in high income economies, low income economies and the world average. Source: PwC analysis What we measure – Figure 2.11: The Total Tax Rate calculation for Kazakhstan the Total TaxbRate (KZT) '000 (KZT) '000 The Total Tax Rate measures the Pro�t before tax (PBT) 23,153 tax cost for our model company. Add back above the line taxes borne: Corporate income tax, employer social Social Tax 2,964 contributions, and all other taxes Property tax 369 borne by the company are expressed Land tax 17 as a percentage of pro t before all of Environment pollution fee 23 these taxes (called the commercial Vehicle tax 13 pro t in the Doing Business project 3,386 methodology). Pro�t before all taxes borne / commercial pro�t 26,539 Corporate income tax on PBT after necessary adjustments (4,215) Figure 2.11 shows how the Total Tax Above the line taxes borne (3,386) Rate is calculated, using Kazakhstan as Total taxes borne (7,601) an example. All taxes borne by the case Pro�t after tax 18,938 study company in Kazakhstan total TTR = Total taxes borne / commercial pro�t 28.6% KZT 7,601k which represents 28.6% Note: The table shows an example of the calculation of Total Tax Rate for Kazakhstan. of commercial pro t. The pie chart Source: PwC analysis in Figure 2.12 shows the six different taxes borne by percentage. The largest taxes borne are corporate income tax Figure 2.12: The Total Tax Rate for Kazakhstan, by percentage 55.6% of the Total Tax Rate, and the employer social tax 39.2%. Figure 2.13 shows how the Total Tax Rate for Property tax (4.5%) Land tax (0.2%) Kazakhstan compares to the average Vehicle tax (0.2%) rate for neighbouring economies in Environment pollution fee (0.3%) Eastern Europe and Central Asia,28 and to the world average. It shows a lower percentage for labour taxes Social tax (39.2%) and for other taxes than for both Corporate income tax (55.6%) thesebgroupings. Note: The chart shows the components of the Total Tax Rate for Kazakhstan split by percentage. Source: PwC analysis Figure 2.13: Total Tax Rate for Kazakhstan compared to Eastern Europe and Central Asia, and to the world average Kazakhstan 15.9 11.2 1.5 28.6% Eastern Europe 9.9 20.8 11.1 41.8% and Central Asia World average 16.0 16.2 12.6 44.8% 0% 50% Profit taxes Labour taxes Consumption/other taxes Note: The chart compares the Total Tax Rate for Kazakhstan with the Eastern Europe and Central Asia, and the world average. Source: PwC analysis 28 Central Asia and Eastern Europe includes Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyz Republic, Macedonia FYR, Moldova, Montenegro, Russian Federation, Serbia, Tajikistan, Turkey, Ukraine, Uzbekistan. The average Total Tax Rate around Figure 2.14: Distribution of Total Tax Rate results – 114 economies have Total Tax the world is 44.8%, split pro ts taxes Rates between 25% and 50% 16.0%, labour taxes 16.2%, and other taxes and contributionsb12.6%. 114 economies with TTR ranging from 25% to 50% 35 There is a wide range of results for the Total Tax Rate across the 183 30 economies in the study. Figure 2.14 plots the distribution of results and 25 shows that 114 economies (62%) have a Total Tax Rate between 25% and 50%. 20 27 economies have rates below 25%; and 42 over 50%. 15 10 5 0 0%-5% 6%-10% 11%-15% 16%-20% 21%-25% 26%-30% 31%-35% 36%-40% 41%-45% 46%-50% 51%-55% 56%-60% 61%-65% 66%-70% 71%-75% 76%-80% 81%-85% 86%-90% 91%-95% 96%-100% >100% Number of economies Note: The chart shows the distribution of Total Tax Rate for all economies in the study. Source: PwC analysis Taxes on pro t – why the Figure 2.15: What taxes on pro�t are levied around the world? statutory rate of corporate income tax is often not a good indicator of the rate of tax paid Paying Taxes measures the amounts of tax that would actually be paid by a company with the same fact pattern as our case study. Research using the Paying Taxes results shows that for corporate income tax the amount paid may be quite different than the headline statutory rate. (PwC research to be published in 2012.) The great majority of economies in the Paying Taxes study charge corporate income tax, or a similar tax, on the company’s pro ts. Only ten economies 173 economies levy do not levy corporate income tax or a corporate income similar tax on a business with the fact tax on the case pattern of our case study company. study company In a further three economies, no corporate income tax is actually paid 22 economies levy 3 economies do not in the year measured, due to generous extra taxes on pay corporate reliefs and allowances. However, 30 pro t as well income tax due economies charge the capital gain in as CIT to generous the fact pattern separately to capital 30 economies charge allowance gains tax (rather than as part of the capital gains pro ts chargeable to corporate income separately to tax, and often at a different rate); capital gains tax and 22 economies charge additional taxes on the pro ts of the company. As discussed on page 45, on average the company pays 1.3 taxes on its pro ts. See Figure 2.15 for absummary. In calculating the amount of corporate Figure 2.16: Corporate income tax rates for a selection of Asian economies income tax due, adjustments are required to the company’s commercial pro ts to calculate the taxable China pro ts. These will include adding back business expenses which are Korea, Republic of not deductible for tax purposes, 25 6 and deducting tax depreciation Japan for qualifying capital expenditure. These will be required by tax law and will differ between economies. The Taiwan, China required tax adjustments mean that there will be a difference between the Hong Kong SAR, China statutory rate of corporate income tax and the rate of tax that is actually paid 0% 5% 10% 3715% 20% 25% 30% 35% 40% by the company on its commercial Statutory rate per Paying Taxes model Effective rate pro ts. This difference can be greater or less in different economies. China 48 Figure 2.16 shows the position in Korea, Republic of 25 39 ve neighbouring economies in Asia Paci c. It compares the statutory rate Japan of corporate income tax for the case Taiwan, China study company with the effective Hong Kong SAR, rate of tax paid, and shows the main China Negative 0 Positive reconciling items. In China, the statutory rate is 20%, but the effective Relief for losses bought forward Capital gains taxed at a different rate to the statutory rate rate of corporate income tax paid is Tax depreciation in excess of book depreciation Expenses not deductible for tax purposes Other profits/taxes lower at 16.9%. The main adjusting item is accelerated depreciation for tax Note: This chart compares the statutory rate of corporate income tax with the effective rate of corporate income tax and shows the reconciling items. purposes. In Japan, the statutory rate is Source: PwC analysis 30%, but the effective rate is above this at 35.5%. Non-allowable items and two additional taxes on pro t increase the tax cost. Employment taxes and Figure 2.17: The Total Tax Rate for France, 65.7% - by percentage social contributions – what is included in the Total Stamp duty (2.2%) TaxbRate Corporate income tax (12.5%) Employment taxes and social Business tax (6.5%) contributions (called labour taxes Payroll tax (9.4%) in this publication) levied on the employer are a signi cant cost for business. Figure 2.2 shows that on average, across all the economies, labour taxes are 36% of the Total Tax Rate (compared to an average 36% Social security contributions (69.4%) for taxes on pro t and 28% for other taxesbborne). Note: The chart shows a percentage breakdown of the Total Tax Rate for France by tax. Source: PwC analysis It is important to stress that what is included in the Total Tax Rate are the labour taxes that are borne by the employer and not those that are Figure 2.18: The Total Tax Rate for Hungary, 52.4% - by percentage levied on the employee. Employee taxes are not included in the measure Local business tax (11.3%) Special tax (2.5%) of tax cost (the Total Tax Rate). They are, however, included in the measure of the compliance burden (the hours Corporate income tax (15.3%) to comply) where the employer is Land tax (0.4%) responsible for deducting them and paying them over to the government. Vehicle tax (0.4%) Property tax (1.3%) Labour taxes levied on the employer R&D tax (1.7%) Social security contributions can include payroll taxes and (65.1%) taxes on bene ts, as well as social Fuel tax (2.0%) security payments and other social contributions. Figure 2.17 shows a Social security contributions Tax rate breakdown of the Total Tax Rate for Pension contribution 51.7% France as an example. In France, the Rehabilitation contribution 4.6% case study company pays an employer Health care contribution 3.8% payroll tax, calculated on the wages Training contribution 3.2% and salaries (9.4% of the Total Tax Unemployment contribution 1.6% Rate), and employer social security Community tax 0.2% contributions (69.4% of the Total TaxbRate). Note: The chart shows a percentage breakdown of the Total Tax Rate for Hungary together with a list of social security contributions. Source: PwC analysis In some countries, multiple employer social contributions can add to the tax cost, and also to complexity and the compliance burden. For example, there are six different social contributions borne by our case study company in Hungary, together making up 65.1% of the Total Tax Rate (Figure 2.18). In Hungary, the cost of employer labour taxes is 34.1% of commercial pro ts, more than twice the world average of 16.2%. The time needed to comply with labour taxes in Hungary, at 146 hours, is also well above the world average of 99 hours. In most economies, social contributions Figure 2.19: Social security contributions borne and collected in are levied by government, partly South American economies on the employer and partly on the employee. As explained, the Total Tax Argentina 61 39 Rate measures the tax cost for the case Bolivia 53 47 study company and therefore only includes those levied on the employer. Brazil 61 39 The Total Tax Rate results are therefore Chile 14 86 affected by the government policy Colombia 77 23 choice in each economy on the split of Ecuador social contributions between employer 59 41 andbemployee. Guyana 60 40 Paraguay 65 35 Figure 2.19 shows this split for Peru 100 economies in South America, using the Paying Taxes results. On average Uruguay 39 61 in these economies, the split is 55% Suriname 100 borne by the employer and 45% Venezuela, R.B. 74 26 by the employee. Three economies are outliers. In Chile, (86%) and in 0% 100% Suriname (100%) a higher percentage South America average for Social South America average for Social security borne by employer – 55% security levied on employee – 45% is levied on the employee. In Peru, 100% is borne by the employer. Social security contributions borne by employer Social security contributions levied on employee Note: The chart shows the percentage split of social contributions in South American economies between those levied on the employer and those levied on the employee. Source: PwC Analysis In the three economies in the African Union with Total Tax Rates over 100%, cascading sales taxes DGG GUDPDWLFDOO\ WR WKH JXUHV The impact of cascading Figure 2.20: The Total Tax Rate for the African Union compared to the world average sales taxes on the Total Tax Rate inbAfrica African Union average 17.7 14.4 24.7 56.8% A feature of some African tax systems World average 16.0 16.2 12.6 44.8% is the high cost of other taxes in the Total Tax Rate. Figure 2.20 shows the 0% 16.0 16.2 12.6 65% Profit taxes Labour taxes Other taxes average Total Tax Rate in the African Union29 is 56.8%, compared to the Note: The chart shows the average Total Tax Rate for the African Union, by type of tax, compared to the world average. world average of 44.8%, and that a Source: PwC analysis large part of the difference relates to other taxes. Figure 2.21: The impact of cascading sales taxes on the Total Tax Rate in Africa In the three economies in the African Total Tax Sales tax Proportion of Union with Total Tax Rates over 100%, Economy Rate element Total Tax Rate cascading sales taxes add dramatically Congo, Democratic Republic of 339.7% 221.0% 65% to the gures. Cascading-style tax The Gambia 283.5% 221.0% 78% systems add extra tax costs to each Comoros 217.9% 176.8% 81% consumer so that an element of them is borne by each company in the supply Note: The table shows the Total Tax Rate for three economies in Africa which have a cascading sales tax and the proportion of the Total Tax Rate attributable to the sales tax. chain. A Total Tax Rate of over 100% Source: PwC analysis means that a company in that economy with the 20% mark-up of our case study could not make enough money just to pay all its taxes. Three economies in the African Union still have cascading sales tax systems. This is down from ve in the last Paying Taxes study as Burundi and Sierra Leone have changed to a VATbsystem. Figure 2.21 shows the impact of cascading sales tax systems in Democratic Republic of the Congo , The Gambia, and Comoros and the percentage by which the Total Tax Rate is increased. If these three economies are excluded from the dataset, the revised average Total Tax Rate for the African Union is 42.6%, compared to a revised world average of 40.9%. For the remaining economies in the African Union, other taxes are 10.9% of commercial pro t on average, compared to 8.8% on average around the world. 29 African Union includes Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo (Dem. Rep.), Congo (Rep.), Côte d’Ivoire, Djibouti, Egypt (Arab Rep.), Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia (The), Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, São Tomé and Principe, Senegal, Seychelles, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, Zimbabwe What we measure – the time Figure 2.22: Analysis of hours to comply in Colombia - 193 hours spent on tax compliance Corporate Labour Consumption The time to comply measures the Compliance process income tax taxes tax compliance burden for the case Preparation study company. Contributors in each Data gathering from internal sources (for 6 20 24 economy are asked to estimate the example accounting records) time needed for compliance activities Additional analysis of accounting information 16 12 24 to highlight tax sensitive items across the three major types of taxes it Actual calculation of tax liability including data 5 10 6 complies with. This includes corporate inputting into software/spreadsheets or hard income tax; labour taxes and social copy records contributions (both those levied on Time spent maintaining/updating accounting 0 0 0 the employer and those levied on the systems for changes in tax rates and rules employee, which the employer deducts Preparation and maintenance of mandatory 5 4 0 tax records if required through the payroll); and consumption Total 32 46 54 taxes. Compliance activities for each Filing type of tax are grouped under three Completion of tax return forms 1 12 6 headings – preparing the tax gures, Time spent submitting forms to tax authority, 2 10 0 completing and ling the tax returns, which may include time for electronic �ling, and paying the taxes. waiting time at tax authority of�ce etc Total 3 22 6 Figure 2.22 shows how the time to Paying taxes comply is calculated using Colombia as Calculations of tax payments required 2 6 0 an example. In Colombia a total of 193 including if necessary extraction of data from accounting records hours are needed, or nearly ve weeks Analysis of forecast data and associated 1 6 0 of full time work (with a 40-hour calculations if advance payments are required week). The most amount of time (87 Time to make the necessary tax payments, 2 7 6 hours or over two weeks of full time either online or at the tax authority of�ce work) is spent on labour taxes. Split by (include time for waiting in line and travel if necessary) type of compliance activity (see Figure Total 5 19 6 2.23), 68% of the total hours (around Grand Total 40 87 66 three and a half weeks) are spent preparing the tax gures. Note: The table shows the calculation of the hours to comply in Colombia split between type of tax and compliance activity. Source: Doing Business database Figure 2.23: Hours to comply in Colombia by compliance activity Prepare 32 46 54 132 File 3 22 6 31 Pay 5 19 6 30 0 hours 150 hours Corporate income tax time Labour tax time Consumption tax time Note: The chart shows the hours to comply in Colombia by compliance activity. Source: Doing Business database Figure 2.24 shows how the time to Figure 2.24: The hours to comply in Colombia compared to Latin America and the comply in Colombia compares to the Caribbean, and the world average average in Latin America, and the Caribbean,30 and the world average. Colombia 40 87 66 193 It shows that our company spends World average 70 99 108 277 less time on tax compliance than on Latin America average in both these groupings, across & Caribbean 77 138 167 382 all the three taxes. 0 hours 400 hours Corporate income tax time Labour tax time Consumption tax time The average time to comply around Note: The chart compares the hours to comply in Colombia with the Latin America and the Caribbean, and the the world is 277 hours, split corporate world average. Source: Doing Business database income tax 70 hours, labour taxes and social contributions 99 hours, and consumption taxes 108 hours. Figure 2.25: Distribution of the time to comply results – 124 economies have between 100 and 350 hours There is a wide range of results for the time to comply in the Paying 124 economies with time to comply ranging from 100 hours to 350 hours Taxes study. Figure 2.25 shows the 35 distribution across the 183 economies included. There is a concentration of 30 results, with 124 economies between 25 100 and 350 hours. 21 economies take less than 100 hours, and 38 economies 20 need more than 350. 15 10 5 0 0-50 51-100 101-150 151-200 201-250 251-300 301-350 351-400 401-450 451-500 501-550 551-600 601-650 651-700 701-750 751-800 801-850 851-900 901-950 951-1000 >1000 Number of economies Note: The chart shows the distribution of results for the time to comply. Source: PwC analysis 30 Latin America and Caribbean includes Antigua and Barbuda, Argentina, Bahamas (The), Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, Uruguay, Venezuela (R.B). It takes longer to comply As shown in Figure 2.24, the hours with 9AT than it does with to comply include any time spent corporate income tax in updating accounting systems for On average, it takes the model changes in tax rates. The Paying company longer to comply with VAT Taxes research shows that in the years than it does for corporate income tax. spanning before and after the nancial Figure 2.26 shows that on average, crisis (January 2008 to June 2011), across the 151 economies with VAT, 40 economies changed their VAT the model company needs 123 hours to rate. 74% of the rate changes were an comply with VAT compared to 74 hours increase, and 26% a reduction. Eleven for corporate income tax. economies changed their rate more than once. For example, in the UK the VAT is the predominant form of sales rate of 17.5% was reduced to 15% from tax system used around the world. December 2008, returned to 17.5% on 151 of the 183 economies included in 1 January 2010, and increased to 20% the Paying Taxes study have a VAT- on 4 January 2011. type sales tax system. Of the other 32 economies, 15 have a different form of consumption tax and 17 have no Figure 2.26: On average, it takes the company longer to comply with VAT than consumption tax which applies to the with corporate income tax case study company. Corporate income tax 50 12 12 74 The time needed to comply with VAT VAT 79 25 19 123 varies considerably around the world 0 hours 140 hours and even between neighbouring Prepare File Pay countries. For example, in the Note: The chart shows the average time to comply with corporate income tax and with VAT for the 151 economies European Union countries there is with VAT. a common legal framework for VAT Source: PwC analysis systems, but the time needed to comply still varies considerably, from 24 hours in Finland and Luxembourg to 195 in Bulgaria. Research carried out using Figure 2.27: The frequency at which VAT returns are required and the amount of data from the previous Paying Taxes data required impacts the time to comply studies shows that administrative procedures vary from country to Frequency of returns country, and that this has a signi cant Monthly (23 economies) 125 impact on how long it takes to comply Bi-monthly/Quarterly (7 economies) 81 with VAT (see The impact of VAT 0 hours 150 hours compliance on business).31 Average time to comply with VAT Amount of data required on the return The frequency at which VAT returns 0-20 boxes on the return (12 economies) 6 are required, and the amount of data requested in the returns, impacts the Over 20 boxes on the return (16 economies) 13 time to comply. Figure 2.27 shows 0 15 Average time to comply per VAT return the results of an analysis of a sample group of 30 economies. The time to Note: The chart shows (1) the average time needed to comply depending on whether VAT returns are required to be made monthly or less frequently and (2) the average time per VAT return where more or less than 20 boxes have to be comply increased by an average 54% in completed, both for a sample group of 30 economies with VAT. Source: PwC analysis, The impact of VAT compliance on business, September 2010 economies where monthly VAT returns are required, compared to those whose returns are less frequent, either bi- monthly or quarterly. And the time needed for each return increased by Figure 2.28: Compliance time rises where invoices have to be submitted to over 100% where there were more than support returns 20 boxes to complete on the return. Requirement to submit invoices 153 The compliance burden also increases No requirement to submit invoices 90 where invoices have to be submitted 0 200 with VAT returns. Figure 2.28 shows Average hours to comply with VAT/consumption taxes an average increase of 70% in the time needed where invoices have to Note: The chart shows results for 161 economies providing data on the requirement to submit invoices with the VAT / consumption tax returns. bebsubmitted. Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 31 The impact of VAT compliance on business September 2010 – http://www.pwc.com/gx/en/tax/indirect-taxes/impact-vat-compliance-business.jhtml Different government The compliance burden also rises practice in administering where taxpayers have to deal with taxes can impact the different tax authorities for different compliance burden. taxes. Corporate income tax and VAT The way in which tax is administered are administered by the same authority by government does vary around the in the majority of economies (70%). world and this affects the compliance However, as shown in Figure 2.31, the burden for business. We recently time to comply rises by 31% if there is published the results of a study which a separate tax authority for indirect looks at how governments around the tax. Social security contributions world administer their tax rules and are administered separately in the how different practices can increase majority of economies (67%), and the or ease the compliance burden for time to comply increases by a similar business. (See Paying Taxes – the amountb(30%). compliance burden.)32 These results use data from the Paying Taxes 2011 study. It also includes views given in interviews with a small number of leading experts, from the private Figure 2.29: Where tax rules are complicated it tends to take more time to comply and public sectors, with a wealth of experience in thisbarea. +39% Compliance time for business increases by an average of 39% in economies where the tax rules are considered by the Paying Taxes The study covers a range of aspects contributors to be complicated or very complicated of tax administration, from the Very simple/simple rules 249 complexity or simplicity of the rules; the paperwork needed for tax Complicated/very complicated rules 346 compliance; the approach of the tax 0 400 authorities and what happens in a tax Average hours to comply audit to government being transparent Note: The chart shows results for 155 economies providing data on simple/complicated tax rules. about the taxes they receive and how Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 they spend them. Complicated or ambiguous tax rules Figure 2.30: The time to comply increases where there are more levels of taxes increase the compliance burden for business. Figure 2.29 shows that the Levels of government compliance time for business increases 1 237 by an average of 39% in economies 2 300 where the tax rules are considered by the Paying Taxes contributors to be 3 351 complicated or very complicated. 0 400 Average hours to comply Tax systems around the world vary in Note: The chart shows results for 157 economies providing data on levels of government that can levy taxes. their degree of centralisation. Some Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 are quite centralised, with most taxes levied and administered at the national level. Others are quite decentralised, Figure 2.31: Where there is a separate tax authority for indirect tax or for social with additional layers of taxation at contributions, the time needed to comply increased by 30% the provincial or regional and local levels. Decentralised tax systems bring Indirect tax +31% bene ts by making local government Separate tax authority 143 more independent, and also more Same tax authority 109 accountable to citizens. But layers of 0 200 taxation can increase the complexity Average time to comply with VAT or other consumption tax and compliance burden for business. Social contributions Figure 2.30 shows that the time needed for our case study company to comply Separate tax authority 111 with its tax affairs increases with more Same tax authority 85 +30% levels of taxes. 0 200 Average hours to comply with labour taxes and social contributions Note: The chart shows results for 160 economies providing data on their indirect tax and social security contributions authority. Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 32 Paying Taxes – The compliance burden – http://www.pwc.com/gx/en/paying-taxes/compliance-burden.jhtml What we measure – the Figure 2.32: The number of payments calculation for Japan number of tax payments Doing Business Actual made in a year indicator payments Notes The number of payments measures Corporate income tax 1 3 Online �ling the number of times the case study Enterprise tax 0 2 Paid jointly company has to pay taxes in the year Inhabitants tax 1 3 Online �ling and how it makes these payments. It Health insurance 1 12 Online �ling includes all taxes, whether these are Welfare pension insurance 0 12 Paid jointly levied on the company, or like VAT, Child allowance contribution 0 12 Paid jointly are administered by it. It provides Workmen's accident compensation 0 2 Paid jointly a measure of the number of taxes Employment insurance 1 2 Online �ling which must be complied with. It also Consumption tax 1 4 Online �ling takes into account the method of Fixed assets tax 1 4 Online �ling payment and the use of electronic City planning tax 0 1 Paid jointly ling and payment. Where the majority Depreciable �xed assets tax 1 1 of businesses, like the case study Business premises tax 1 1 company, le and pay their taxes Real property acquisition tax 1 1 online, the number of actual payments Stamp tax 1 1 is reduced to re ect the ef ciencies Automobile tax 1 1 of going electronic. Also, where taxes Automobile tonnage tax 1 1 are paid through a third party, such as Fuel tax 1 On each Embedded in third fuel tax paid to the fuel distributor, the refuelling party payments number of payments is taken as one to Registration and license tax 1 1 re ect the lack of compliance burden. Tax on interest 0 1 Tax withheld at source Total 14 66 Figure 2.32 shows how the number of payments indicator is calculated, Note: The table shows an example of the calculation of the number of payments for Japan. using Japan as an example. Our model Source: Doing Business database company makes three payments of corporate income tax and inhabitants tax in a year, monthly payments of health insurance, and quarterly payments of VAT. However, these are all reduced to one payment per tax in the indicator result to re ect the status of online ling and payment in Japan. Some taxes are paid jointly with others, so that no separate payments are required or recorded in the indicator result. This includes welfare pension insurance, child allowance contribution, and workmen’s accident compensation. The remaining taxes are either paid annually, such as depreciable xed assets tax and business premises tax, or are embedded in a payment to a third party (fuel tax). In Japan, our company makes 66 actual tax payments in a year, but this is reduced to 14 for the number of payments indicator. The pie chart in Figure 2.33 shows the Figure 2.33: The number of payments for Japan number of payments by type of tax. It shows how the high number of taxes Consumption tax (1) that have to be paid in Japan (20) compared to the world average (9.3) contributes to the result. Figure 2.34 Labour tax (2) Other (9) shows how the number of payments for Fixed Assets Tax (1) Japan compares to the average number Depreciable Fixed Assets Tax (1) for neighbouring economies in Asia Business Premises Tax (1) Paci c,33 and to the world average. It Automobile Tax (1) Profit tax (2) shows how the results for Japan are Stamp Tax (1) favourably impacted by the status of Real Property Acquisition Tax (1) online ling and payment. Inhabitants Tax (1) Fuel Tax (1) The average number of payments Registration and license tax (1) around the world is 28.5, split pro t taxes 3.4, labour taxes 11.5, and other Note: The chart shows the number of payments for Japan split by type of tax. taxes 13.6. Source: Doing Business database As for the other Paying Taxes Figure 2.34: The number of payments for Japan compared to Asia Paci�c and indicators, there is a wide range world average of results around the world for the number of taxes. Figure 2.35 shows the Japan 2 2 10 14 distribution of results. 119 economies Asia Pacific 3.3 10.0 10.8 24.1 have between six and 35 payments. Only seven economies have fewer than World 3.4 11.5 13.6 28.5 six payments, but 57 economies have 0 payments 35 payments more than 35. Profit taxes Labour taxes Other taxes Note: The chart compares the number of payments for Japan with Asia Paci�c and world average. Source: PwC analysis Figure 2.35: Distribution of the number of payments results – in 119 economies there are between 6 and 35 payments 119 economies with number of payments ranging from 6 to 35 35 30 25 20 15 10 5 0 0-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-90 91-95 96-100 >100 Number of economies Note: The chart shows the distribution of results for the number of payments. Source: PwC analysis 33 Asia Paci�c includes Afghanistan, Australia, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, Fiji, Hong Kong SAR, China, India, Indonesia, Japan, Kiribati, Korea (Rep.), Lao PDR, Malaysia, Maldives, Marshall Islands, Micronesia (Fed. Sts.), Mongolia, Nepal, New Zealand, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Sri Lanka, Taiwan, China, Thailand, Timor-Leste, Tonga, Vanuatu, Vietnam. How many different taxes Figure 2.36: Global average number of taxes paid by the case study company – have to be paid around 9.3 taxes thebworld Corporate income tax is one of many Profits taxes (1.3) different taxes paid by business. Around the world, our case study company has to comply with 9.3 different taxes on average, including labour taxes, consumption taxes, Other taxes (4.0) Labour taxes (2.0) property taxes, and other taxes, as well as taxes on its pro ts. Figure 2.36 shows how the average gure of 9.3 is split by type of tax. Pro t taxes (average 1.3) include Property taxes (1.0) Consumption taxes (1.0) corporate income tax, but also other taxes levied on pro ts, such Note: The chart shows the average result for all economies in the study. Source: PwC analysis as enterprise tax and inhabitants tax in Japan, or education tax in Nigeria. Labour taxes (average Figure 2.37: Number of taxes in Sweden and Kenya 2) include a variety of taxes and Sweden - 5 taxes Kenya - 16 taxes social contributions that relate to Tax base Tax Total Tax Tax Total Tax employment and can be levied on Rate Rate the employer or on employees, for Pro�t Corporate income tax 15.7% Corporate Income tax 33.1% example payroll tax and social security Labour Payroll tax 35.5% Social Security (NSSF) 5.3% contributions in France, or training/ Training or apprentice tax 1.5% apprentice tax in Kenya. Consumption Consumption Value added tax (VAT) - Value added tax (VAT) - taxes (average 1) include VAT, which Property Real estate tax 0.6% Land Rent 0.1% is used in the majority of economies, Land Rates 0.3% but also other types of consumption Stamp duty on contracts 0.0% tax, such as sales tax in Malaysia or Other Fuel tax 1.0% Single business permit - 4.2% cascading sales tax in The Gambia. manufacturer Taxes on property (average 1) include Single business permit - trader 0.8% taxes on property ownership and use, Standards levy 3.5% such as real estate tax in Peru and taxes Fuel tax - excise duty 0.4% on the transfer of property, such as Road maintenance levy 0.4% stamp duty and property transfer tax Petroleum development duty 0.0% inbJamaica. Tax on cheque transactions 0.0% Advance Motor Vehicle tax 0.0% As Figure 2.36 shows, there are many Tax on interest 0.0% other taxes levied on business (average Total Tax Rate 52.8% 49.6% 4). These include taxes on interest Note: The chart compares the number of taxes and how they contribute to the Total Tax Rate in Sweden and Kenya. and cheque transactions, taxes or Source: PwC analysis license fees for road vehicles, road maintenance levies, advertising taxes, and taxes on energy usage, refuse collection and sewerage. Multiple taxes add to the complexity Figure 2.38: Distribution of results for the number of taxes – 138 economies have and the compliance burden for between 5 and 12 taxes business. Two examples, Kenya and Sweden, provide a good illustration 138 economies with number of taxes ranging from 5 to 12 of the variation in the number of 50 taxes levied on business (see Figure 2.37). Both economies have a similar 40 Total Tax Rate (Kenya 49.6%, Sweden 52.8%). However, Sweden follows what may be seen as good practice 30 and raises these revenues by levying just ve taxes – one tax per tax base. There is corporate income tax, payroll 20 tax, VAT, real estate tax, and fuel tax. In contrast, Kenya levies 16 taxes with 10 corporate income tax, two labour taxes, one consumption tax, three property taxes, and nine other taxes. 0 1-2 3-4 5-6 7-8 9-10 11-12 13-14 15-16 17-18 19-20 Number of economies Figure 2.38 shows the distribution of results around the world for the Note: The chart shows the distribution of results number of taxes. Source: PwC analysis number of taxes. A hundred and thirty eight economies have between ve and 12 taxes; 14 economies have fewer than ve taxes; and 31 more than 12. Ef cient online systems Figure 2.39: Time to comply with VAT in Asia Paci�c – online �ling and payment make paying taxes easier Effective electronic systems for Without online filing and 147 ling and paying taxes lighten payment (14 economies) With online filing and the compliance burden, bringing payment (10 economies) 71 ef ciency bene ts for both business 0 200 and government. The advantages of Average hours to comply with VAT electronic ling are that it reduces the amount of paperwork and lowers Taiwan, China 30 21 33 the cost of administration. Increased Japan 19 8 8 35 automation also allows a more Singapore 28 10 2 40 targeted and risk based approach to Korea, Rep. 25 14 6 45 audit and compliance. And electronic payment, rather than payment in cash Australia 22 19 13 54 or by cheque, reduces interactions Thailand 44 6 6 56 41 with tax of cials and can help New Zealand 62 12 6 80 eliminatebcorruption. India 56 36 21 113 Figure 2.39 shows the time needed to Philippines 93 27 120 comply with VAT in the ten economies China 96 24 12 132 in the Asia Paci c region which have VAT-type sales tax systems and online 0 hours 140 hours systems to pay and le these taxes. On World average – 123 hours 28 average, the time needed to comply Prepare File Pay across these economies is 71 hours, Note: The chart shows 1) the average hour to comply with VAT on economies in Asia Paci�c which have VAT comparing which compares to the world average those which do/do not have online �ling and payment and 2) the time to comply with VAT the economies with online �ling compared to the world average. for VAT of 123 hours. Figure 2.39 also Source: PwC analysis shows the impact of online systems on the tax compliance burden and compares the average time for these economies to those in Asia Paci c which also have VAT but do not have online systems. In economies where taxpayers like our case study company typically pay and le their VAT online, the average VAT compliance time is reduced by 52%. How the Paying Taxes results Figure 2.40: Comparison of the Total Tax Rate by region vary by region The purpose of the Paying Taxes Asia Pacific 18.1 10.3 8.9 37.3 project is to provide quantitative Central Asia & data to stimulate and inform Eastern Europe 9.9 20.8 11.1 41.8 discussion around tax policy and tax OECD 34 15.9 23.3 3.2 42.4 administration, and to encourage European Union35 12.1 28.3 3.0 43.4 dialogue on tax reform. The Paying World Average 16.0 16.2 12.6 44.8 Taxes study enables governments Latin America to benchmark their tax system with & Caribbean 19.9 14.6 13.2 47.7 relevant peer groups on a like for like G2036 17.7 23.3 8.7 49.7 basis, including geographic neighbours African Union 17.7 14.4 24.7 56.8 or economies in the same economic grouping. In this section we show how 0% 60% the results vary by region around the Profit taxes Labour taxes Other world, using selected regional and Note: The chart shows the average result for the economies in each region and the world average for all economies in the study. economic groupings ofbeconomies. Source: PwC analysis Figure 2.40 shows a comparison of the average Total Tax Rate. The African Figure 2.41: Comparison of the time to comply by region Union has the highest average Total Tax Rate (56.8%), and Asia Paci c OECD 53 80 62 195 the lowest (37.3%), compared to the European Union 42 99 68 209 world average of 44.8%. Both regions have pro t taxes that are a higher Asia Pacific 74 73 83 230 percentage of commercial pro t than World Average 70 99 108 277 the world average (African Union Central Asia & 94 106 112 312 17.7%, Asia Paci c 18.1%, world Eastern Europe average 16.0%), and employer labour African Union 78 102 135 315 taxes which are lower than the world G20 109 111 138 358 average (African Union 14.4%, Asia Latin America & Caribbean 77 138 167 382 Paci c 10.3%, world average 16.2%). 0 hours 400 hours The biggest difference between the Corporate income tax Labour taxes Consumption taxes two regions is the other taxes levied on Note: The chart shows the average result for the economies in the region and the world average of all economies in the study. our case study. In the African Union, Source: PwC analysis these are 24.7% on average, compared to 8.9% in Asia Paci c, and 12.6% worldwide. On page 38 we discuss the impact of cascading sales taxes on the Total Tax Rate in Africa. Latin America and the Caribbean is the region where it takes longest to comply with tax, and the average time needed (382 hours) is nearly twice that for the Organisation for Economic Co-operation and Development (OECD) countries (195 hours), and well above the world average (277 hours). Figure 2.41 shows a comparison of the average time to comply by region. The OECD countries tend to have more mature systems with streamlined tax paperwork and good electronic systems. The average time needed in OECD countries is below the world average for all the three main taxes – 34 OECD member countries include Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, corporate income tax, (OECD 53 hours, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea (Rep.), Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, world average 70 hours); labour taxes United Kingdom, United States. 35 The European Union includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, (OECD 80 hours, world average 99 Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Romania, hours); and consumption tax (OECD 62 36 Slovak Republic, Slovenia, Spain, Sweden, United Kingdom. G20 member states include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, hours, world average 108 hours). Korea (Rep.), Mexico, Russian Federation, Saudi Arabia, South Africa, Turkey, United Kingdom, United States. A quarter of the economies worldwide Figure 2.42: More than 350 hours are needed for tax compliance in eight where the company spends more than economies in Latin America and the Caribbean 350 hours on tax compliance are in the Latin American and Caribbean region. Paraguay 132 220 387 2 Figure 2.42 shows the hours needed in Jamaica 336 48 414 these eight economies by type of tax. Argentina 105 70 240 415 The OECD countries also have the Panama 180 252 482 fewest tax payments, with an average Ecuador 108 306 240 654 13.1 compared to the world average Venezuela, R.B. 120 360 384 864 41 of 28.5, and 37.9 in Central Asia and Eastern Europe. This is not because Bolivia 120 480 480 1,080 the OECD has fewer taxes (10.7) Brazil 736 490 1,374 2,600 compared to Central Asia and Eastern 0 hours 2,700 hours Europe (9.0) and worldwide (9.3). It World average – 277 hours Latin America & Caribbean average – 382 hours is because in the majority of OECD 12 Profit taxes Labour taxes Cosumption taxes countries the company can le and pay its taxesbonline. Note: The chart shows the hours to comply for economies in Latin America and the Caribbean where it takes more than 350 hours. Source: PwC analysis Figure 2.44 compares the average number of payments and taxes between the OECD economies with Figure 2.43: Comparison of number of payments by region online systems (32 economies) and those without (two economies). OECD 1.8 3.5 7.8 13.1 It clearly shows the impact of G20 2.2 4.9 6.5 13.6 online systems on the number of paymentsbresults. European Union 2.2 6.2 8.5 16.9 Asia Pacific 3.3 10.0 10.8 24.1 World Average 3.4 11.5 13.6 28.5 Latin America & Caribbean 3.7 12.3 15.8 31.8 African Union 3.7 13.8 18.5 36.0 Central Asia & Eastern Europe 5.2 15.4 17.3 37.9 0 payments 40 payments Profit taxes Labour taxes Other taxes Note: The chart shows the average result for the economies in the region and the world average of all economies in the study. Source: PwC analysis Figure 2.44: The number of taxes and tax payments for the OECD economies 10.7 OECD economies with online systems (32) 12.3 10.5 OECD economies without online systems (2) 25.0 0 10 20 30 Average number of taxes Average number of payment results Note: The chart compares the average number of taxes and average number of payments results for OECD economies with and without online systems. Source: PwC analysis Paying Taxes in the Figure 2.45: The overall paying taxes ranking for the European Union Europeanb8nion Twenty six of the twenty seven 4th Quartile (4%) European Union (EU) countries are included in the Paying Taxes study (Malta is not included). Many of them 3rd Quartile (19%) have good results. Figure 2.45 shows 1st Quartile (35%) that over 77% of EU economies have an overall ranking as calculated in this study in either the rst (35%) or second (42%) quartiles. 2nd Quartile (42%) In the EU, the company spends 208 hours on tax compliance, makes 17.0 Note: The chart shows percentage of economies in the European Union in each quartile of the ranking for the overall tax payments, and has a Total Tax Rate paying taxes ranking Source: PwC analysis of 43.4%; all of which are below the world average. Figure 2.46 compares the average results for the EU with the Figure 2.46: Paying taxes in the EU compared to the world average world average. Some 69 hours (or 8 days) less are needed for compliance, 11.5 fewer payments, and the tax cost is 1.4% lower. Particularly for the two indicators that measure compliance, (rather than cost), paying taxes is -1.4% -69 -11.5 easier than in some other regions. Labour taxes and social contributions are a large part of the tax burden in the EU. Figure 2.47 shows that on average labour taxes account for 36.7% of the 28.5 paymets 17 payments 208 hours 277 hours number of payments, 47.5% of the time 43.4% 44.8% to comply, and 65.1% of the Total Tax Rate. The company pays 2.7 different labour taxes on average, compared to Total Tax Rate Time to comply Number of payments 2.0 around the world. EU average World average Note: This chart compares the average results for the European Union with the world average. Source: PwC analysis Figure 2.47: Labour taxes are a large part of the cost in the EU Payments 12.9 36.7 50.4 Time 20.1 47.5 32.4 Total Tax Rate 27.9 65.1 7.0 0% 100% Profits taxes Labour taxes Other taxes Note: The chart shows the average results for the EU economies in the study. Source: PwC analysis At 28.3% of commercial pro ts on Figure 2.48: Comparison of the Total Tax Rate in the European Union average, the cost of labour taxes in the EU is well above the world average (16.2%). Figure 2.48 shows Luxembourg 4.1 15.1 1.6 20.8 43 the Total Tax Rate by economy, split Cyprus 9.1 11.8 2.2 23.1 by type of tax. In 81% of the EU Ireland 11.9 11.6 2.8 26.3 economies, labour taxes and social Denmark 20.2 3.6 3.7 27.5 contributions levied on the employers are the majority of the tax cost (above Bulgaria 4.9 19.2 4.0 28.1 50%). As mentioned above, lower Slovenia 14.1 18.2 2.4 34.7 Total Tax Rates are not necessarily United Kingdom 23.1 11.0 3.2 37.3 the best model. What is important is how governments use the tax Latvia 6.0 27.2 4.7 37.9 revenues they raise from business Spain 1.2 36.8 0.7 38.7 and other taxpayers, and that higher Finland 13.7 24.1 1.2 39.0 rates contribute to prosperous and Netherlands 20.9 18.1 57 40.5 stablebsocieties. Portugal 15.0 26.8 1.5 43.3 Pro t taxes are 12.1% of commercial Poland 17.4 23.6 2.6 43.6 pro ts on average in the EU. The Lithuania 5.7 35.1 3.1 43.9 section on page 33 explains why the statutory rate of corporate income Romania 10.4 31.8 2.2 44.4 tax is often not a good measure of the Greece 13.4 31.7 1.3 46.4 rate of tax paid on pro ts, and this can Germany 19.0 21.8 5.9 46.7 also be seen in the EU economies. For Slovak Republic 7.2 39.6 2.0 48.8 example, in Ireland the statutory rate of 12.5% is below the average for our Czech Republic 7.5 38.4 3.2 49.1 company in the EU 21.8%. However, Hungary 14.8 34.1 3.5 52.4 taxes paid on pro ts in Ireland are Sweden 15.7 35.5 1.6 52.8 11.9%, which is very close to the EU average. Tax depreciation is less Austria 15.0 34.8 3.4 53.1 generous in Ireland than in some other Belgium 5.2 50.4 1.7 57.3 EU economies, and the capital gain Estonia 8.0 39.4 11.2 58.6 in the fact pattern of our case study France 8.2 51.7 5.7 65.7 company is taxed separately at the higher rate of 25%. Italy 22.8 43.4 2.3 68.5 0% 75% EU average – 43.4% Profits taxes Labour taxes Other taxes Note: The chart shows the Total Tax Rate for the economies in the European Union. Source: PwC analysis Figure 2.49 shows the time to comply Figure 2.49: Comparison of the time to comply with the VAT in the European Union with VAT in the European economies. Although there is a common legal framework for VAT, the time to comply Finland 7 11 6 24 43 varies considerably, from 24 hours Luxembourg 16 6 2 24 in Finland and Luxembourg to 195 France 13 11 2 26 hours in Bulgaria. On page 41 and Ireland 23 4 3 30 also in our research published in September 2010 (see The impact of VAT United Kingdom 24 5 1 30 compliance on business), we discuss Estonia 21 4 6 31 how different administrative practice Italy 21 7 4 32 by governments can affect the time needed to comply with VAT. Sweden 20 12 4 36 Netherlands 26 6 6 38 Cyprus 30 6 4 40 Denmark 27 9 4 40 Germany 32 5 6 43 Lithuania 48 6 4 58 Romania 30 24 6 60 Spain 34 18 12 64 Austria 27 23 17 67 Slovenia 37 11 26 74 Greece 42 20 26 88 Latvia 77 9 8 94 3.2 Belgium 65 27 4 96 Hungary 42 34 20 96 Portugal 72 12 12 96 Slovak Republic 82 12 9 103 Poland 90 10 10 110 Czech Republic 42 46 72 160 Bulgaria 140 24 31 195 0 hours 200 hours EU average – 68 hours Prepare File Pay Note: The chart shows the time to comply with the VAT for the economies in the European Union. Source: PwC analysis Paying taxes in Figure 2.50: The overall paying taxes ranking for sub-Saharan Africa sub6aharan Africa There is a wide range of Paying 1st Quartile (15%) Taxes results for the economies in sub-Saharan Africa. Two economies (Mauritius and Botswana) rank in the top 25 for the overall paying taxes 4th Quartile (44%) 2nd Quartile (13%) ranking, but nearly half the economies come in the bottom quartile (44% – see Figure 2.50). Note: This chart shows percentage of economies in the sub-Saharan Africa in each quartile of the ranking for the In sub-Saharan Africa, the company overall paying taxes ranking. 3rd Quartile (28%) Source: PwC analysis spends 318 hours on tax compliance, makes 37.0 tax payments and has a Total Tax Rate of 57.1% all of which are Figure 2.51: Paying taxes in sub- Figure 2.52: Consumption taxes and above the world average. Figure 2.51 Saharan Africa compared to the other taxes add burden to sub-Saharan compares the average results for sub- world average Africa Saharan Africa with the world average. The tax cost is 12.3% higher, 41 hours or 5 days more are needed and 8.5 -68 more tax payments. 12.3% +41 +8.5 Payments Figure 2.52 shows a breakdown for 10.5 38.3 51.2 the results for sub-Saharan Africa by type of tax. Consumption taxes and Time 24.4 32.4 43.2 other taxes add to the burden in these 277 hours countries. They represent 51.2% of 318 hours 57.1% 44.8% TTR payments, 43.2% of the hours and 37.0 28.5 31.7 23.6 44.7 44.7% of the tax cost. Total Tax Rate Time to comply Number of 0% 100% payments Figure 2.53 shows the Total Tax Rate sub-Saharan Africa average World average Profits taxes Labour taxes Other taxes for the Economic Community of West Note: The chart compares the average results for the sub- Note: The chart shows the average results for the African States (ECOWAS), split by Saharan Africa with the world average. economies in sub-Saharan Africa. type of tax. There are considerable Source: PwC analysis Source: PwC analysis differences in the make-up of the Total Tax Rate across these countries. Half Figure 2.53: Comparison of the Total Tax Rate in the Economic Community Of the economies (seven) in ECOWAS West African States (ECOWAS) have Total Tax Rates above the world average, yet all of these are low income Sierra Leone 15.1 32.1 1.5 43 economies (apart frombSenegal). Nigeria 32.7 11.8 2.2 Ghana 33.6 11.6 2.7 Cape Verde 37.8 3.6 3.7 Burkina Faso 19.2 43.6 4.1 Liberia 43.7 18.2 2.4 Niger 43.8 11.0 3.2 Côte d'Ivoire 44.3 27.2 4.7 Guinea-Bissau 45.9 36.7 0.7 Senegal 46.0 24.2 1.2 Togo 49.5 18.1 57 Mali 51.8 26.8 1.5 Guinea 54.3 23.6 2.6 Benin 66.0 35.1 3.1 Gambia, The 283.5 0% 300% Sub-Saharan Africa average – 57.1% Profit taxes Labour taxes Other taxes Note: The chart shows the Total Tax Rate for the economies in ECOWAS. Source: PwC analysis Figure 2.54 shows the time to comply Figure 2.54: Comparison of time to comply in the East African Community (EAC) for the East African Community (EAC), split by type of tax. It shows that the Rwanda 22 48 78 148 43 largest amount of time is generally spent complying with consumption tax. Tanzania 60 52 60 172 All of the ve economies in EAC have Uganda 45 66 102 213 VAT, yet the time needed to comply, Burundi 80 48 146 274 ranges from 148 hours in Rwanda to Kenya 60 57 276 393 393 hours in Kenya, re ecting different rules and administrative procedures in 0 hours 450 hours Sub-Saharan Africa average – 318 hours these economies. Profit taxes Labour taxes Consumption taxes Figure 2.55 shows the number of tax Note: The chart shows the time to comply for the economies in EAC. payments for the Southern African Source: PwC analysis Development Community (SADC), split by type of tax. On average, the Figure 2.55: Comparison of the number of payments in the Southern African company pays 8.4 taxes in these Development Community (SADC) economies, below the world average of 9.3. In most of the SADC economies, Mauritius 11 5 7 taxes are led and paid manually. Only the economies with the lowest number South Africa 2 3 4 9 (Mauritius and South Africa) have Botswana 6 13 19 online systems. Malawi 2 1 16 19 Seychelles 12 6 3 21 Lesotho 5 16 21 Madagascar 1 8 14 23 Angola 4 12 15 31 Congo, Dem. Rep. 1 16 15 32 Swaziland 2 13 18 33 Namibia 3 12 22 37 Zambia 5 13 19 37 Mozambique 7 12 18 37 Tanzania 5 24 19 48 Zimbabwe 5 14 30 49 0 payments 50 payments Sub-Saharan Africa average – 37 payments Profit taxes Labour taxes Other taxes Note: The chart shows the number of payments for the economies in SADC. Source: PwC analysis What would contributors to Contributors in 79% of economies the Paying Taxes study most wanted to see improvements in how a like tobchange" tax audit is dealt with in their country. Contributors to the Paying Taxes Contributors in only 21% of economies study are tax experts from a number rated this as a good or best aspect of of different professional rms in their tax system. Figure 2.57 shows each economy who assist business in the regional picture, which highlights complying with their taxes. They each that the wish to improve this area respond to a questionnaire every year, is even higher in Latin America and identifying tax changes and reforms, the Caribbean (92%) and Asia Paci c and calculating the results for the three (88%). Around the world, contributors Paying Taxes indicators. in 66% of economies wanted to see improvements in the approach of their Contributors were also asked to tax authority, with higher percentages indicate what they considered to be in Latin America and the Caribbean the best aspects of their country’s tax (78%), the EU (72%) and Asia Paci c system, as well as what elements most (67%) – see Figure 2.58. need to be improved. Their responses identify the aspects of tax systems around the world that business would most like to change. Figure 2.56 shows contributors’ responses for the different aspects on which they were asked to comment. Dealing with tax audits and disputes was the area that most contributors wanted to improve, followed by the approach of the tax authorities. Contributors in 79% of economies wanted to see improvements in how a tax audit is dealt with in their country. 79% Contributors in only 21% of economies rated this as a good or best aspect of their tax system. 21% Figure 2.56: Best and worst aspects of the tax system Dealing with tax audits and disputes Approach of tax authorities Best (3%) Best (3%) Needs most Needs most Good (18%) Good (30%) improvement improvement (24%) (16%) Needs Needs improvement improvement (55%) (51%) Clarity and stability of tax rules Aspects of the tax rules Levels of government and tax authority Best (6%) Best (8%) Needs most Best (9%) Needs most Needs most improvement Good (36%) improvement improvement (7%) (12%) (13%) Good Good (46%) (58%) Needs Needs Needs improvement improvement improvement (26%) (46%) (32%) Note: The chart shows results for 154 economies responding to this question. Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 Figure 2.57: Contributors would like to see improvements in Figure 2.58: ...and also the approach of the tax authorities dealing with tax audits and disputes... Latin America Latin America & Caribbean 92% 78% & Caribbean Asia Pacific 88% European Union 72% All economies 79% Asia Pacific 67% African Union 76% All economies 66% OECD 72% OECD 65% European Union 69% African Union 54% 0% 100% 0% 100% Needs improvement/Needs most improvement Needs improvement/Needs most improvement Note: The chart shows results for all economies responding to the question and for Note: The chart shows results for all economies responding to the question and for selected regions. selected regions. Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 Source: PwC analysis, Paying Taxes – The compliance burden, September 2011 What makes paying There is a wide range of results for An effective electronic system for taxes easier" the Total Tax Rate in the Paying Taxes ling and paying taxes also eases the This chapter contains our analysis study. We stress that lower rates compliance burden for business and and commentary on the results of the are not necessarily a good model, lowers the cost of tax administration. Paying Taxes 2012 study. We explain and that what is important is that how each of the three Paying Taxes higher taxes should ow through to The private sector plays an essential indicators are calculated, and we infrastructure, high value government role in contributing to economic show how the results for any economy services and a better quality of life for growth and prosperity in any society. can be compared to others, such as citizens. However, the results show A fair, ef cient and sustainable tax neighbouring economies or those in that Total Tax Rates tend to be higher system for business is an important the same economic grouping, as well in low income economies, with higher part of the regulatory environment as to the world average results. We also proportions of commercial pro ts paid that governments can create to foster show how the different taxes paid by in corporate income tax and other business investment and economic the Paying Taxes case study company taxes. Ensuring reasonable tax levels growth. There is no single model for a contribute to the results. and broadening the tax base, as well as good tax system; however, the Paying making it easier to pay tax, could help Taxes study enables governments to The Paying Taxes study clearly shows increase tax revenues by encouraging benchmark on a like-for-like basis, that corporate income tax is just one of local businesses to register and pay tax. and can help identify best practice many different taxes paid by business and areas for reform. Figure 2.59 (9.3 on average around the world). Three economies in Africa still have summarises some best practice which Eliminating the numerous small taxes, cascading sales tax systems, which – from these results – makes paying which do not raise signi cant revenues add extra tax costs to each consumer taxes easier. Figure 2.60 suggests – for for government, but which do add in the sales chain and considerably discussion – some possible hallmarks of to the complexity and the number of increase the Total Tax Rate. Changing a good taxbsystem. tax payments for business, can make to a value-added type sales tax system paying taxes easier. (VAT) would eliminate inef ciencies from the cascading effect (with sales The results also show that many tax being charged on sales tax). economies levy multiple taxes on the same tax base (average 1.3 taxes on Reducing the compliance burden pro t and two labour taxes around the brings bene ts for both government world). Merging or aligning these taxes and business. Making it easier to pay into a single tax per base need not tax means companies spend less time reduce the revenues raised, but would and resource dealing with their tax signi cantly ease the compliance affairs and should also increase the burden for business and the time level of compliance. Our analysis needed to comply. shows that the different administration practices used by governments around The Total Tax Rate measures the cost the world have a considerable impact of the taxes actually paid by the case on increasing or reducing the time study company. Our analysis shows needed for tax compliance. Best that adjustments required under the practices include simple and clear tax rules in many economies mean tax rules, streamlined tax paperwork that there is a difference between the and easy-to-complete tax returns and headline statutory rate for corporate having the same tax authority deal income tax and the rate of tax actually with all the main taxes. paid on company pro ts. Reducing these adjustments to broaden the base can reduce the complexity for business and enable governments to raise the same revenues with a lower statutorybrate. Figure 2.59: From our results – what makes paying taxes easier? One tax per tax base Eliminating very small taxes Replacing cascading sales which do not raise revenues taxes with 9AT Simple and clear tax rules Broadening the tax base Fewer levels of government which can levy taxes Single Tax Authority for all Streamlined tax paperwork Ef cient online systems the main taxes and easy to complete return Note: The table shows what makes paying taxes easier Source: PwC analysis Figure 2.60: Some hallmarks of a good tax system Clear purpose Strategic Coherent and ef cient Fair and transparent Raises revenue to fund Stable and consistent, Minimises the Based on law rather public expenditure enabling long-term administrative burden than the practice of Balances the budget business investment tax authorities Clear and (over a period of time) A fair value for natural understandable rules Consistently enforced Meets social objectives resources Consistent with wider Independent and Improves human Encourages international (non tax) law and effective route for development trade international principles resolving disputes with Encourages change in Consultation on policy the tax authority behaviour which society and administration Mutual trust and respect is agreed upon between taxpayers and the tax authority Note: The table shows some possible hallmarks of a good tax system Source: Paying Taxes 2010, PwC discussion of the possible hallmarks of a good tax system, page 23 Chapter 3 Using the Paying Taxes data around the world Jamaica page 73 Colombia page 63 Chile page 61 Sweden page 87 Germany page 65 Romania Kazakhstan page 83 page 77 Switzerland page 89 Turkey page 91 Japan page 75 Middle East page 81 Hong Kong page 69 Ghana page 67 Vietnam page 93 Rwanda page 85 Indonesia page 71 Mauritius page 79 Chile Increasing tax The Paying Taxes publication has revenues to nance become an important way in which the ease of paying taxes in Chile can be reconstruction measured and compared, particularly with other Latin American countries. Chile’s indicators in the study for this Sandra Benedetto year have not changed from previous PwC Chile years, and this con rms that Chile has a stable tax system which compares well in the region. While there has been little change in the year covered by the study, there are some changes to be aware of for the future. In 2010, Law N° 20,455 was enacted (in force from 31 July 2010) with the intention of increasing scal revenues to help nance the country s reconstruction after the earthquake that hit Chile on 27 February 2010. This law increases the rate of First Category Tax from 17% to 20% for the calendar year 2011, but it will be reduced to 18.5% in 2012 and will return to 17% in 2013. There are also ongoing discussions which have been initiated by government to consider further measures to increase tax revenues for the future, but no rm proposals have yet been tabled. Total Tax Rate 25% Number of hours 316 Number of payments 9 While the tax authorities and It is also worth focusing on VAT government have made efforts which accounts for 137 of the hours to to implement more ef cient tax comply. The separate publication “The compliance systems, so that for impact of VAT compliance on business�, example, most of the businesses in published by PwC in September Chile now le tax returns and pay 2010, (which is based on the results their taxes online, the time to comply from Paying Taxes 2010), shows the required by our case study company importance that this tax has around in Chile is still relatively high. the world. It identi es the signi cant TaxpayerCo requires 316 hours per impact that the VAT compliance burden year to prepare and le tax returns can have on businesses, identifying and to pay corporate income taxes, several aspects that can either increase labour taxes and VAT. This is above or reduce the burden. For Chile there the world average of 277 hours. These are a number of positive aspects to compliance hours cover not only the VAT system, such as the existence corporate income tax, but also the of a single consumption tax, a single social security contributions and add tax authority dealing with direct and signi cantly to the time required (137 indirect taxes, and the availability of hours). The social security system online ling and payment for VAT. It in Chile is private, and employees is also the case that Chilean taxpayers can freely select from a wide are not required to enclose additional number of institutions. Businesses documents to support VAT returns are then obliged to declare and pay submitted and taxpayers receive tax contributions for the employees to the credits due related to VAT on exports, multiple institutions that they choose. very promptly. The aspects of the VAT The system is considered to work system where there is the potential for well from the perspective that the tax improvement include the frequency of compliance is performed by businesses, the VAT lings and payment, and the so helping to reduce tax avoidance and length of the VATbreturn. ensuring proper compliance. The Paying Taxes study always receives signi cant attention in the Chilean press and in connection with Paying Taxes 2011, Francisco Selamé, the lead partner of Tax and Legal Services at PwC Chile, highlighted Chile’s leading position in the region. Colombia Commitment to Despite global economic turbulence, further tax reform the Colombian economy has been resilient in recent years. The to improve the country is now attracting more taxbsystem foreign investment than ever and the government has been actively committed in the last decade to Carlos Chaparro achieving a more predictable, easy-to- comply with tax framework for foreign PwC Colombia and domestic investors alike. The compliance burden has been reduced steadily over the years and is re ected in the fall in the number of payments and the time to comply in the Paying Taxes results. The expansion of an online ling and payment system has helped this along with various other measures, for example the tax reforms introduced in late 2010 which ruled that tax payers will not need to submit VAT and withholding tax returns where the amount payable equals zero. Total Tax Rate 74.8% Number of hours 193 Number of payments 9 Corporate income tax rates have Complying with municipal taxes also remained stable in the last couple of remains an important part of the years. But stamp tax, which was in tax burden: the regulation may vary place for a long time has had a 0% signi cantly from one jurisdiction tax rate since early 2010, and new to another and the “ scal war� legislation provides for a phased between municipalities can often withdrawal of this increasingly leave taxpayers with double taxation. unpopular debit tax. However, taxes While modernising the municipal tax in Colombia still represent a high regulation has been on the agenda cost when compared to some other for many years, there has been no economies in Latin American region improvement achieved in the system and also the world average. Broad so far. reforms (including labour, and corporate taxes) have been passed The Colombian government is aware with a view to reducing the size that the progress already achieved of the informal sector, though the is not enough, and that reform is effectiveness has yet to be assessed. still needed in order to achieve a more competitive tax system. The Despite the signi cant reform agenda government has announced recently its that has already been implemented, willingness to address the issues and there is still potential for further tax to adopt in-depth reforms in the short reform. Taxpayers continue to spend term, and has set up a task force to a large amount of time trying to keep assist with the aim of putting a package up-to-date with the daily ow of new of measures together in one go rather decrees, of cial rulings and judiciary than adopting a piecemeal approach. decisions. Some procedural matters still require intense interaction The Paying Taxes 2012 regional between businesses and the tax launch in Bogota will provide a forum agencies. A good example is where for business and government to businesses are due reimbursements of collaborate on business tax reforms VAT – long queues at the tax of ce to using the Paying Taxes results as a secure these is a common occurrence. bench mark. Germany Developments in The German Total Tax Rate of 46.7% e- ling, and a focus for the 2012 study fell from the 48.2% of the previous year. This fall on trade tax and the is mainly the result of changes to tax solidarity surcharge depreciation. Although these have reduced the tax cost the Total Tax Rate for Germany is still high when Dr. Tobias Taetzner compared with the world average of 44.8% and the average in the EU of PwC Germany 43.4%. Germany ranks 130 out of 183 for this indicator. The level of social security contributions is a major part of the German Total Tax Rate and currently, there is much discussion in the country on a possible reduction of social securitybcontributions. Two other taxes that attract media attention are the solidarity surcharge and the trade tax. The solidarity surcharge initially introduced in 1991 to cover the costs of the German reuni cation has been retained as a regular element to cover general governmental expenses. From time to time there are discussions on whether this “temporary� tax is still constitutional, although recently the German Supreme Tax Court has con rmed that it is. The trade tax is also currently under attack as some trade associations and political parties would like to see it abolished or at least to be fundamentally reformed. However the trade tax is the primary source of income of the local authorities, so discussions in this regard are quite dif cult. Total Tax Rate 46.7% Number of hours 221 Number of payments 12 The payments indicator may reduce As regards the indicator for compliance in the future following the mandatory time, it can be expected that with e- ling of corporation tax, trade tax the introduction of the new e- ling and annual VAT returns for 2011 obligations mentioned above there will onwards. At present, this is optional for be a temporary increase in the number trade tax and VAT, but not possible for of hours required in the upcoming corporation tax. years in view of the need for companies to adapt their IT-systems, but a fall in A further e- ling development for time thereafter. the future will be the requirement to electronically submit accounts The European launch event for supporting the tax returns from 2012 Paying Taxes 2012 will take place in onwards using an of cial taxonomy’. Germany this year and representatives At the time of writing, no nal from business, politics, nancial taxonomy has been published as the administration and press will be results of a eld test are still being present to discuss the results. The evaluated, but according to the tax launch is an excellent opportunity for authorities, taxpayers will not need business to engage in a constructive to install a new accounting system or dialogue with the government and the to remodel their chart of accounts. tax authorities on the future shape of There has been some criticism that the tax system the new e- ling bene ts the tax authorities more so than the taxpayer, especially for small and medium-sized entities like TaxPayerCo, and that the implementation of the new regulations will almost certainly give rise initially to an increased administrative burden. Ghana Reforms to make The Africa launch of the Paying Taxes the tax system more 2011 publication took place in Accra, Ghana with the Deputy Minister business friendly of Finance and Economic Planning as guest speaker. There were also contributions from Commissioners of Darcy White the Ghana Revenue Authority (GRA). PwC Ghana The launch presented an opportunity for the department and District Heads of the GRA, the business community, representatives from the World Bank Group as well as tax consultants to interact on the state of the Ghana’s tax system and how to improve it. In his speech, the Deputy Minister mentioned that the government is committed to continuing with reforms to make the administration of the tax system business friendly. He also stated that the GRA is currently in the process of installing a fully automated tax administration infrastructure, to help reduce tax compliance cost andbtime. Total Tax Rate 33.6% Number of hours 224 Number of payments 33 The 2011 Government of Ghana Budget The case study company made 33 Ghana also saw some tax increments Statement increased the withholding payments in Paying Taxes 2012 to during the 2010 nancial year, as part tax threshold. Withholding tax comply with all its tax and social of governments drive to increase the obligations, though not a direct tax cost security obligations. This ranks Ghana revenues for the public nances. This to the business, impose a compliance 111 out of 183 countries for this sub change also affected the case study cost burden as resource and time has indicator. However with the New company, as the capital gains tax rate to be allocated to the collection and Pensions Act being implemented, the increased from 5% to 15% which was subsequent payment of the withheld number of payments could increase, a contributing factor of the increment amounts to the Tax Authorities. as the new law provides for a further in the Total Tax Rate from 32.7% Increasing the withholding tax mandatory occupational pension tob33.6%. threshold could therefore potentially scheme and a voluntary personal reduce the tax compliance burden pensions contribution known as the Overall, the Paying Taxes publication especially for small and medium second and third tiers respectively, and its ndings should help sized entities such as the case of which the payment may be made government shape the Ghana tax studybcompany. to different bodies. This new rule system and assist the business could therefore cause Ghana’s community to compare tax costs In addition, the GRA expects to ranking in terms of the number of against other investment locations. streamline its activities and to segment payments to fall. Perhaps as part of taxpayers into large, medium and the government’s reform process, small taxpayers groups so helping an alternative would be to consider with the services that it provides centralising payments and ling and reduce the cost of compliance. returns for both direct and indirect With segmentation, the GRA hopes tax as well as other payments to the to be able to provide services which regulatory bodies. This would help are tailored to meet the needs of the decrease the compliance burden for medium and smallerbentities. thebtaxpayer. Hong Kong SAR, China A simple, transparent Hong Kong SAR, China is well-known and ef cient tax system for its simple tax system. As is evident from the Paying Taxes study over the years, Hong Kong SAR, China has a Peter Yu strong track record of being ef cient in administering the tax system. It also PwC Hong Kong SAR, China has a Total Tax Rate which is amongst the lowest in thebworld. The decrease in the Total Tax Rate from 24.1% to 23% over the last year is mainly due to a one-off waiver of property rates for the tax year 2010/11 (subject to a speci ed ceiling). And there are other tax incentives which are available to reduce the overall tax burden even further for corporations. In particular, tax deductions for environmental protection machinery and installation costs were introduced in 2009 and an immediate 100% tax deduction for capital expenditure on environment-friendly vehicles has been available since June 2010. In the 2010/11 Budget announced in February 2010, the Hong Kong SAR, China government also proposed to introduce a tax deduction over a period of ve years for capital expenditure on the purchase of registered trademarks, copyrights and registered designs. The assumptions made for the case study company in the Paying Taxes study however mean that these new tax incentives are not re ected in the Total Tax Rate. Total Tax Rate 23% Number of hours 80 Number of payments 3 The Hong Kong SAR, China Inland The tax system in Hong Kong SAR, Revenue Department is generally well China has remained relatively regarded for its initiatives in employing stable. Much of the government’s the latest information technology, focus with regard to tax policy has streamlining work procedures and been on maintaining the simple and maintaining communication with the easy-to-administer features of the tax-paying public. This has always existing system. As such, the ease been evident in the Paying Taxes study, of compliance is expected to be a with the 2012 report again revealing continuing feature of the system. Hong Kong SAR, China as being among Moreover, the government’s nancial the easiest places in the world for position is strong and therefore there businesses to comply with their tax is little reason to expect signi cant compliance obligations. Hong Kong upward changes in the Total Tax Rate. SAR, China’s tax administration is Historically, developments in the tax highly transparent, with information systems of other jurisdictions have had on such matters as tax revenues, little in uence on the shaping of Hong objection procedures and tax rules and Kong SAR, China tax policy. It remains guidance being published online and to be seen, however, whether this will readily accessible to the public. continue to be the case, particularly as the Hong Kong SAR, China tax To further reduce taxpayers’ system is becoming increasingly administrative burden and time linked to the rest of the world through required in complying with tax ling the conclusion of Double Taxation requirements, the Hong Kong SAR, Agreements, the increasing focus of the China Inland Revenue Department Hong Kong SAR, China Inland Revenue brought in electronic ling of corporate Department on transfer pricing and tax returns from 1 April 2010. Because a general trend globally towards of the assumptions regarding the size cross-border cooperation between of the company used in the Paying taxbauthorities. Taxes study, the bene ts of electronic ling are not re ected in the 2012 study. Nonetheless, going forward it is expected that such bene ts will be enjoyed by a greater range of taxpayers as the system becomes further developed and more widely adopted and the limit on the size of businesses eligible to participate is raised. Indonesia Strengthening Tax reforms which started with transparency and the enactment of the amended tax administration law in 2008 accountability to demonstrate the government’s efforts improve the tax to reshape the tax environment and improve the investment climate. administration and Internally the Indonesian Tax Of ce increase taxpayer (ITO) became more professional in its approach in dealing with taxpayers compliance and the tax administration was also modernised. As a result, the Paying Taxes study in 2009 showed a Ray Headifen signi cant reduction of time spent on PwC Indonesia tax compliance. However, as shown by the stability of the gures in the number of hours and number of payments in more recent Paying Taxes study results, there have been few changes in the tax administration rules and regulations for the past couple ofbyears. Although e- ling has been introduced, further improvements need to be made. The majority of Indonesian taxpayers are still not familiar with e- ling and mostly opt to do direct hardcopy ling of their returns. However, the government is committed to continuing the reform of tax administration, with the aim of increasing taxpayer compliance by increasing the ef ciency and effectiveness of the ITO, and improving good governance in the tax administration by strengthening transparency and accountability. Total Tax Rate 34.5% Number of hours 266 Number of payments 51 Amended VAT Laws were enacted These tax concessions have been in April 2010, and this marked the implemented since 2007 through completion of some further major tax the issue of several regulations that reforms, and since that enactment the covers a signi cant range of types of ITO continues to issue implementing investment and the plan is to increase regulations for VAT which aim to this range before the end of 2011 along reduce the administrative burden for with tax holidays for entrepreneurial most taxpayers. and innovative companies. Currently ve business sectors that may enjoy The downward trend in the Total the tax holiday are industries of base Tax Rate in the Paying Taxes study metal, oil nery and/or base organic has resulted from the enactment chemical sourced from oil and gas, of the amended income tax law in machinery, renewable energy and 2009, which has gradually reduced telecommunication equipment. the income tax rates for corporates (and for individuals). In addition, the government has also provided a package of concessions for companies that invest in certain qualifying business sectors and/or regions. The concessions are: A reduction in net income of up to 30% of the amount invested, prorated at 5% for six years of the commercial production, provided that the assets invested are not transferred out within six years; Acceleration of scal depreciation and or amortisation deductions; Extension of tax loss carry-forwards for up to ten years; A reduction of the withholding tax rate on dividends paid to non- residents to 10%. Jamaica Inadequate tax Jamaica has relatively high tax rates Despite prevailing tax rates being collections despite when compared with those of its peers in the region. Corporate tax is levied at the higher end of the regional spectrum, tax collections have not relatively high tax at 33.33% and individuals pay income been adequate to cover expenditure. rates – resolving tax at 25% on incomes exceeding approximately US$5,100, plus a 2% This is in large part due to the country having one of the highest debt burdens thebdilemma “education tax�, a 2% refundable in the world, with the national debt contribution to a national housing fund hovering at 128% of GDP, which and there is another 2.5% levy on the explains why debt servicing costs are Eric Crawford rst US$11,600 (approx.) for social expected to consume as much as 48% PwC Jamaica security scheme. Additionally, there is of the 2011/2012 Budget. The scal VAT at a standard rate of 17.5%, with de cit, though down from the 10.9% signi cantly higher rates being applied of GDP that it was in scal 2010 was to motor vehicles, fuels, liquor, tobacco still 6.1% for the scal year 2011. And and telephone services and handsets. the tax collections have consistently Further, employers pay payroll related been below budget. For scal year taxes of over 7%, in addition to their 2011 for example, tax collections corporate taxes. At these levels, the fell short of what was budgeted by burden on taxpayers cannot be said to approximatelyb10%. be light. Yet, at 23% tax as a percentage of GDP is lower than what prevails in So what is being done and what can be most other jurisdictions in the region. done to resolve the apparent dilemma represented by inadequate funding in an environment where tax rates can hardly be increased? Firstly, important initiatives have been instituted to strengthen controls over government expenditure in an attempt to cauterise waste and corruption. These include: the strengthening of the role of the Contractor General and the National Contracts Commission, which oversee and monitors the procedures involved in the awarding and performance of government contracts; the development of a scal In terms of expanding the tax net, A mechanism has been introduced Accountability Framework, which much has been done over the past few to facilitate a single payment to involves the passage of legislation years to simplify the administration settle all payroll taxes and shortly, aimed at tightening the authority of the tax system, which should make a single system will replace of statutory bodies to borrow it easier for taxpayers to comply. ve separate mechanisms for without approval of the Finance Amongst these initiatives: accounting for those taxes. Minister and general improvement in the management of the scal The lowering of some rates to make A forensic investigation unit has operations of the government; and it easier for taxpayers to comply. been established in the revenue The gradual reduction in the to enhance its capacity to deal the enhancement of the role of the transfer tax and Stamp Duty rates withbcorruption. Public Appropriation and Accounts that are applicable to the transfer of Committee which reviews budget shares and land, either inter vivos The Paying Taxes 2012 regional launch proposals in greater detail than was or on death is one such initiative. in Kingston will provide a forum for hitherto the case. The transfer tax has been reduced business and government to discuss from 7% to 4% and stamp duty some of these important issues using The second objective must be to from 5.5% to 3% for the sale of land the Paying Taxes results to inform broaden the tax base. This has (stamp duty remains at 1% on the thatbdialogue. been pursued almost entirely from sale of shares). These reductions the perspective of bringing what are intended to encourage the is believed to be a large body of development of the market in recalcitrant taxpayers into the tax net. these assets and the proper But there is another dimension to this administration of estates which problem to which attention needs to frequently languish for many years be paid, namely the extent to which due to the unavailability of cash to there are transactions that generate complete the probating of willis. signi cant wealth, yet fall legitimately outside of the scope of taxation, either A programme to introduce by policy or for lack of adequate tools Electronic Filing and Payment to enforce the legislation. Furthermore, Systems was introduced in October there is an inordinately high incidence 2008. This enables taxpayers to of “discretionary waivers�, meaning le most tax returns and settle that the government waives tax that liabilities electronically. The is legally due. It will not be easy to settlement of tax liabilities by address this latter issue, given that way of direct debit has also been individual taxpayers who bene t from introduced recently. various exemptions will ght to retain their positions of privilege. Japan Reduction in the A launch event was held jointly with rate of corporate The World Bank/IFC in Tokyo in December 2010 to introduce the Doing income tax deferred Business 2011-Paying Taxes study. A in the aftermath of report on the Total Tax Contribution made by major corporations in Japan the earthquake and undertaken by PwC Japan for the rst thebtsunami time during 2010 was also presented. A panel discussion by tax leaders of PwC rms in the Asian region, the UK as Hiroyuki Suzuki well as a representative of The World Bank Group followed the launch of PwC Japan these reports. The event was successful with a wide variety of people in the audience from government andbbusiness. Total Tax Rate 49.1% Number of hours 330 Number of payments 14 Since the rst Paying Taxes study in There are growing concerns about the There is some possibility that a 2006 the Total Tax Rate has fallen trend for leading Japanese companies temporary surcharge of corporate by approximately 4%. This has to move their manufacturing tax and individual income tax will be primarily been due to the introduction operations out of Japan to Asia not implemented although there is still of an accelerated method for tax only because of commercial factors resistance to such an increase in taxes depreciation. Its aim was to stimulate such as the growth of its market, in view of the very strong downturn a recovery of Japanese economy in and the appreciation of the Yen and in the economy. An alternative being the last couple of years, but in terms lower production costs in other Asian considered is an increase in the VAT of the normal effective tax rate of countries, but also the high level of rate in future years. In spite of the companies, the effect is limited Total Tax Rate, and in particular high level of Total Tax Rate in Japan, because it is a temporary difference the high corporate tax rate, which is national tax revenues have been and the statutory corporate tax rate becoming one of the key drivers for falling. With government debt now has remained unchanged at just over Japanese enterprises to consider when nearly double the Japanese GDP, 40% (which includes the Inhabitants deciding whether or not to “exit� out there will be ongoing debate on how Tax and Enterprise Tax, both of which ofbJapan. tax policies should be developed are taxes based on pro ts). The tax rate to deal with this debt, alongside is the highest among OECD member Given these circumstances, draft tax the need to maintain Japanese countries and also among our Asian reforms were proposed in 2011, after a companies’bcompetitiveness. neighbours such as Korea, Singapore long dialogue between policy makers and Thailand. Japan’s tax on pro ts and business. This included a proposal (comprising corporate tax, inhabitants for a 5% reduction of the corporate tax tax and enterprise tax) accounts for rate while the taxation base was to be more than 50% of the Total Tax Rate, a expanded by the elimination of certain much higher proportion than the world tax bene ts with the intention that the average and the Asian Paci c average. impact on overall revenue would be The heavy burden of corporate tax is neutral. However, this proposal has therefore a crucial issue for Japanese been suspended and not implemented businesses when considering their cost in the aftermath of the earthquake competitiveness in the global market. and tsunami on 11 March 2011 that damaged the Japanese economy signi cantly. Japanese business society was obliged to accept a deferral of the reduction of the statutory tax rate given the crisis. Currently, there are extensive debates taking place among policy makers and business about how to fund the recovery of the area which suffered huge damage, both business and social. Kazakhstan Changing the scal The Paying Taxes survey has become environment as a powerful tool for promoting change and development in the scal part of a move environment around the world. As towards a modern documented in this report over the years, it has been used as a catalyst developedbeconomy for change – and this is especially so in Kazakhstan. For Kazakhstan, change has been a vital part of the Peter Burnie entire economic environment since PwC Kazakhstan independence 20 years ago. The vision of Kazakhstan as a modern developed economy has been a clear goal for the Kazakh authorities. This goal is regularly acknowledged by the Ministry of Finance and Main TaxbCommittee. Therefore, as part of this story of change, the scal environment has not been left out but has rapidly developed in the past 20 years. Initially the focus for the tax authorities was with the development of the regimes dealing with extractive industries. The country has seen the development of a range of scal arrangements such as Production Sharing Agreements to cope with the unique challenges faced by resource based economies. More recently, the government has looked at continued diversi cation of the economy and a program of supporting broader industrial development. Total Tax Rate 28.6% Number of hours 188 Number of payments 7 Against this background of change, In our launch event for the country’s Finally, the state tax service the ndings of the Paying Taxes series media last year, there has been a representatives also shared that have become an objective benchmark view expressed by some that a more the Paying Taxes survey results are for the authorities. Given the stated appropriate sample company would eagerly awaited within the halls of goal of development for the country, be one that more follows the core the Ministry of Finance; brie ngs are there is a strong desire for this type of economic sectors of Kazakhstan required and questions are asked about external independent benchmarking rather than a manufacturer of ower the relative ratings of Kazakhstan process to be conducted and for the pots. The fact that this level of debate against the region, trade partners results to document the results of the arose in a brie ng for the country’s as well as the front runners in the reformbagenda. mass media in itself shows the level of Paying Taxes study ratings as soon as interest in the study. the results are available. So – at least Recently PwC Kazakhstan met with for Kazakhstan and its taxpayers, the senior representatives who were The particular area of focus for survey is a real tool being actively energised to engage with us in a reform in most recent times has been used by the authorities. Hopefully discussion around the latest series in the area of tax administration – a goal of continuous improvement of results. We started with revisiting and the impact on compliance time in Kazakhstan’s relative ranking the methodology from where the of new tax lodgement software and will also continue to enhance the results are derived. We agreed that the overall impact on the taxpayer taxpayer’sbexperience. understanding and revisiting the experience. Again, our meetings with basic aims of the survey were key to the representatives of the tax service understanding how aspects of the zoomed in to focus on why the newly country’s scal regime compares with introduced electronic ling system was other countries and also whether not re ecting a signi cant reduction proposed reforms are addressing any of in time to comply. The view of the the areas in which the tax regime may authorities was that the system should compare less favourably with others. be making a signi cant difference. The applicability of the methodology However, interestingly the views and its appropriateness for a resource of contributors and even the media based country such as Kazakhstan was that the level of education and continues to be hotly debated, both new skills required by users of the within the Ministry and Tax Service new system had perhaps not been and also by the country’s media. suf ciently re ected in the level of compliance time. Again the survey itself brought a focus to an area in which the expectations of taxpayers and the tax service are not yet aligned. Mauritius An increasing tax Mauritius ranks 9th globally in Paying cost in the number Taxes 2012 and number one in Africa. The country compares well with its one ranked economy African counterparts. in Africa Mauritius introduced electronic ling of tax returns as far back as 2003 Anthony Leung Shing and, over the past ve years, it has implemented a number of reforms, PwC Mauritius including its most signi cant one in 2006, when the corporate income tax rate was reduced from 25% to 15% and various exemptions/reliefs were removed to create a simpli ed system. Further improvements have been made since, with the facilitation of tax payments in 2009 for global business companies to pay their corporation tax liabilities in Euros, British Pounds or US Dollars. Mauritius has also streamlined its tax system and made effective use of technology to help ease the burden of tax compliance onbcompanies. Total Tax Rate 25% Number of hours 161 Number of payments 7 Overall, the reforms implemented The trend over the past two years have been positive. The number of re ects a move away from a simpli ed payments and the number of hours and single rate tax system. Mauritius to comply have been stable in most has the vision of becoming the recent years, but the Total Tax Rate has Singapore of Africa and a closer review been increasing which is attributable of the comparative results shows a to the introduction of new taxes. The signi cant difference in respect of Total Tax Rate in 2010 increased from the time required to comply with 22.9% to 24.1% with a corporate social local regulations. Given the current responsibility tax being introduced. budget de cit and lack of buoyancy in Given that the company in the Paying tax collections, there is little scope to Taxes survey operates in general remove taxes or even reduce the rates. industrial/commercial activities, Therefore, to improve its position, other new taxes such as the special Mauritius needs to re-instate its policy levy on banking institutions and the of a streamlined tax system. solidarity levy on telecommunication companies (introduced in 2007 and 2009 respectively) did not impact on the Paying Taxes result. Had the study company been operating in other sectors, then the Total Tax Rate for Mauritius may have increased further. In 2011, further reforms followed a similar pattern and a new capital gains tax on the disposal of immovable properties was introduced. The Total Tax Rate increased by nearly 1% from 24.1% in 2010 to 25%. It is worth noting that the Paying Taxes study does not re ect the new personal solidarity income tax and other exemptions/reliefs being introduced. The full effect of those measures has yet to lter through as the burden of compliance increases with companies being required to le returns with the Mauritius Revenue Authority in respect of dividendbpayments. The Middle East Growing focus on The subject of taxation in the Middle These revenue raising measures scal policy and an East region (MER) continues to generate a great deal of interest include increased fees and levies paid for licenses, permits and other ongoing debate especially as tax laws continue to government approvals necessary about introducing evolve and expand. As we look into the results of Paying Taxes 2012 there are a to operate a business. In addition to rising tariff rates for such items, corporate income number of interesting trends emerging many businesses also need to employ tax and VAT in the MER. increasing numbers of back of ce staff to comply with these changes. This The current year (2012) results of is obviously resulting in increasing Dean Rolfe Paying Taxes highlights that the overhead costs precisely at a time majority of the jurisdictions in the MER when many businesses are struggling PwC Middle East have fallen in this year’s rankings. tobsurvive. Including some of the jurisdictions in the Gulf Cooperation Council. Most Another notable issue is that because notably Kuwait has dropped out of the these charges may not qualify as a top 10. In addition, Saudi and the West “tax�, they are being overlooked as a Bank have also fallen slightly, while the cost of doing business. Yemen has improved. On a positive note, there is a growing It’s not surprising that many of the recognition at a government level jurisdictions in the MER feature so that increasing tariff rates for fees, prominently in the top 10 jurisdictions charges and levies as well as the for the overall paying taxes ranking. increasing frequency of such payments This is largely attributed to the is inef cient from a revenue collection relatively few taxes levied on the case perspective also. Governments study scenario. Indeed in locations are therefore considering ways to like the UAE these taxes are limited consolidate and rationalise their to social security contributions on revenue collection methods. national employees. That said, many of the jurisdictions in the MER are increasingly adopting other revenue raising measures to meet budgetary needs, and this is having an adverse impact on the cost of compliance burden faced by manybbusinesses. Average Total Tax Rate 25.4% Average number of hours 176 Average number of payments 20 The Gulf Cooperation Council (GCC) While not new, Egypt introduced In the rest of the Middle East, many for example is believed to have elevated transfer pricing law with effect from jurisdictions have some level of scal policy from fringe issue to a 1 January 2005. However, it was transfer pricing law (Oman, Saudi core agenda item. One driver being a only in late 2010 that the Egyptian Arabia, Lebanon, Jordan, Kuwait, and perceived desire to coordinate taxation transfer pricing guidelines were Qatar). While no other jurisdiction policy, and ultimately to achieve a issued, and such guidelines provide outside of Egypt currently has formal consensus on the fundamentals of guidance in terms of how the tax transfer pricing guidelines that taxation. These fundamentals comprise authority intends to apply the 2005 law provide speci c guidance in terms of tax rates, tax methodologies and the (retroactively as well as prospectively) the practical application of transfer exchange of information. and how taxpayers are to prepare their pricing law, many of these jurisdictions transfer pricing documentation. Not are expected to adopt transfer pricing Of particular note is the debate on surprisingly, these transfer pricing guidelines in the future, thus, the the introduction of a VAT in the GCC documentation requirements will add compliance obligation in this regard is region. Much has been written on this a great deal of time to the compliance expected to increase. Currently, in the topic, but after years of discussion it burden already faced by taxpayers absence of transfer pricing guidelines seems the business community is no in Egypt, not only in terms of being in these jurisdictions, transfer pricing closer to learning whether a VAT (or expected to prepare transfer pricing audits have occurred adding to the GST) will be introduced in the GCC, documentation, but also in terms of general compliance resources needing and if so, over what time frame. More disclosing related party transactions on to be dedicated by taxpayers to recently, it has been suggested that the Egyptian tax return, in the context thebsubject. corporate income tax may become of the newly issued guidelines. a common feature of the region, but there are a number of philosophical Importantly, Egyptian transfer pricing (and religious) challenges to compliance is not simply in relation overcomeb rst. to cross-border transactions. Most Egyptian companies operate through In the mean time, governments are multiple legal entities, whereby each continuing to tinker with their existing legal entity is treated as a separate tax systems and this is helping to and distinct taxpayer for Egyptian reform, and modernise these laws. corporate tax purposes. As a result, Other recently adopted measures many Egyptian companies have include the introduction of anti- substantial intra-Egypt related party avoidance provisions including transfer transactions whereby such transactions pricing rules. are also subject to Egyptian transfer pricing law and are within the scope of the Egyptian transfer pricingbguidelines. Romania Signi cant reforms The Paying Taxes 2012 report ranks will make paying Romania 154 out of the 183 economies included in the study. This ranking taxes easier in future continues to be heavily in uenced by the high number of tax payments in Romania. 113 payments are required Peter de Ruiter during the course of a year, most of PwC Romania which relate to labour taxes and the fact that currently Romania has no functional electronic payment system available for companies. Compared to the previous year’s results, the three indicators have remained virtually unchanged for the reference period covered by the Paying Taxes 2012 report, as no major scal measures were adopted by the government in this respect to impact these results. There were a number of important changes to the tax system for business in 2010, but these have not had an overall impact on the results. Although there was an increase in the VAT rate from 19% to 24% as of 1 July 2010 and this had a signi cant impact on the business climate, this does not affect the Total Tax Rate indicator, as it does not affect the taxes borne by the case study company. And while the number of hours to comply increased in respect of this VAT change, this was offset by a reduction in the number of hours required following the introduction of mandatory electronic ling for large and medium sized taxpayers which started in November 2010 along with the abolition of the minimum tax. Total Tax Rate 44.4% Number of hours 222 Number of payments 113 In 2011 Romania was one of the Apart from these two measures, the countries which hosted a regional existence of an ef cient electronic launch of Paying Taxes. The launch ling and payment systems is an event attracted substantial attention important feature of any tax system, both with the media and with the which signi cantly in uences the tax authorities. It was also very well number of hours and the number of received by the public. The event payments. Compared to the situation stimulated a good debate with the tax of large or more developed economies, authorities and the Ministry of Finance, which are advanced in terms of both and these debates have encouraged the online ling and payment, in Romania authorities to take an important step the electronic payment system was in the implementation of scal reforms only introduced at the end of 2010 and aimed at improving the scal climate is not yet functional for companies and easing the taxpayer’s scal burden. (only for individuals at present). New reforms implemented by It is expected that with the government have not yet had an introduction of a single tax return for impact on the indicators reported in social security contributions along with the present edition of Paying Taxes, the potential for electronic ling and but they are expected to signi cantly payment for companies for all taxes, improve the position for Romania in that the ranking for Romania will future periods. improve, as the number of payments and the number of hours reduce. These measures include the following signi cant reforms which were The Paying Taxes report and its introduced in 2011: indicators have proven to be a very useful catalyst for the discussions Bringing all labour taxes (payroll with of cials within the Romanian and social security contributions) government and its tax authority under one system of computation, and represent a signi cant milestone control and collection which has for the initiation of comprehensive been achieved by introducing a taxbreforms. single tax return for labour taxes Capping to some extent the level of social security contributions that are applied to taxpayers while recognising that some further alignment of the computation procedure for employer and employee caps is necessary Rwanda Radical reform to The World Bank and IFC’s publication enhance revenue Doing Business 2010 report presented Rwanda as the world’s most improved collection and plans economy. This was in recognition of to introduce e- ling radical reforms that the government has implemented in recent years to ease the business environment in Nelson Ogara the country. The report was well received by government, the business PwC Rwanda community and other stakeholders. The Paying Taxes study, has helped to generate public debate on improving tax administration and continues to be a source of information for policy makers, including the Rwanda Revenue Authority (RRA). However, more engagement with policy makers is required in future to explore how the ndings can be used to improve the tax system and in uence policy changes. While the country is regarded as an attractive destination for business, some investors cite tax administration among the top challenges faced by their businesses. The government has in response, introduced a number of administrative and legislative reforms which has made paying taxes muchbeasier. Total Tax Rate 31.3% Number of hours 148 Number of payments 18 This has seen Rwanda’s rankings in the On the tax compliance front, Rwanda There is still more to be done by Paying Taxes study improve favourably has introduced a new law which the government to ease compliance since year 2006 when the survey was requires that nancial statements costs. Tax laws need to be reviewed rst conducted. For example, the and tax returns are certi ed by to provide clarity on areas that are number of tax payments has reduced competent professionals to enhance uncertain such as the taxation of from 26 in 2006 to 18 in year 2012. compliance and improve quality of insurance business, the recovery of The Total Tax Rate has fallen from nancialbreporting. reverse VAT and VAT treatment of 47.1% to 31.3% over the same period, nancial services. There is no speci c while the time taken to comply has The government is committed to legislation on taxation of insurance decreased by 20 hours. improving tax administration and despite the complexity of this sector during the latest budget announced while recovery of reverse VAT is only Notable administrative and new administrative measures which allowed where there are no similar legislative reforms that have had are intended to ease tax collection, services in Rwanda. The unclear tax impact include the establishment of improve ef ciency, minimise tax laws lead to disputes with the revenue block management system for small leakage and widen the tax base. authority, taking much time to resolve. taxpayers (which groups taxpayers Electronic Tax Registers have been together under a tax district for ease introduced with effect from 1 July In addition, widening the tax base, of administration), introduction of 2011 through a phased approach. bringing the informal sector into the online services though on a limited The government is also planning to tax net and attracting foreign investors scale, the ease of tax registration at introduce e- ling of tax returns and remain key priorities for government. time of registering a business and an payments in the scal year 2011/2012. This will enhance revenue collection amendment allowing for quarterly These major changes are expected to which remains RRA’s primary goal. (instead of monthly) ling of VAT signi cantly ease payment of taxes. returns for small businesses. Overall, the administration measures Taxpayers still complain that ling announced in this year’s budget are The mandate to collect national social tax returns takes a long time and is expected to have a positive impact security contributions and Rwanda bureaucratic. In response, RRA has on the overall paying taxes ranking. Medical Insurance (RAMA) has been introduced a Queue Management The country’s revenue collection has transferred to RRA, thus reducing the System (QMS) at their of ces, which continued to grow, rising from Rwf 186 number of institutions that taxpayers is expected to ease the tax declaration billion in 2005 to Rwf 491 billion for deal with. process by allocating taxpayers scal year 2010/2011. according to services required. Other initiatives that are making a difference include National Annual Taxpayer’s day, expansion of RRA of ces throughout the country to service new taxpayers and introducing Call Centres to address taxpayer’s queries in a timely and professionalbmanner. Sweden Online IT systems The Paying Taxes report plays a vital a focus for the role in reminding the global business community that the overall tax taxbauthority position of a company is not merely determined by a particular country’s corporate tax rate – but by a whole Lennart Svantesson range of essential factors, which in PwC Sweden this publication are brought to light and presented in a summarised and accessible format. Sweden’s rankings in Paying Taxes for all three sub-indicators have since the launch of the rst report in 2006 remained fairly constant. Sweden’s Total Tax Rate of 52.8% is still ranked as one of the highest, in spite of a reduction of the Swedish corporate tax rate from 28% to 26.3% (applicable for nancial years starting 1 January 2009 or later). Total Tax Rate 52.8% Number of hours 122 Number of payments 4 With its 122 hours, Sweden is ranked Apart from the debate on tax planning, above average for the “number of a number of government committees hours� indicator and with only four have also been appointed to review a payments per year, it is at the top of the major overhaul of the entire Swedish rankings for the number of payments’ corporate tax system. indicator. These two measures of compliance are clearly important since The aim of the reform is to establish they can ultimately increase the cost an improved and more neutral for companies, and this is why in recent tax treatment for equity and loan years the Swedish Tax Agency has nancing, with proposals to replace the looked to help ease the administrative current interest deduction provisions burden on the companies by which should lead to a broader tax developing an online IT system for base for corporate taxation which in taxbpayments. turn could help to nance a further reduction in the corporate tax rate. In recent years environmental taxes and environmentally motivated The committees are also looking subsidies have increased substantially at tax incentives for research and in Sweden. It has been the conscious development costs in order to promote aim of the government to implement new investments. an overall tax shift where income taxes and social contribution fees are Finally there are additional gradually replaced with green taxes. governmental proposals to make changes to Swedish taxation It should be noted however that procedures, including a split of the currently the green taxes and subsidies current single tax ling date in May are not caught by the fact pattern of the into four different dates as from 2012. case study company presented in the However, this change is not expected to Paying Taxes study. in itself lead to an increase in the hours required for the compliance process. There is also an ongoing public debate in Sweden concerning tax planning and this has resulted in a number of changes to the Swedish tax system. For example, in 2009 the government enacted anti-debt push down provisions so that a deduction is now not allowed for interest payments in certain circumstances. Switzerland Implementing The Swiss tax system continues to effective information stand out with its long-term stability, evidenced by the stable Total Tax Rate. exchange with Alongside this it is noteworthy that overseas tax the Swiss authorities continue in their efforts to reduce the administrative administrations to compliance burden for companies. develop Switzerland’s The tax authorities of the largest canton in Switzerland, the canton tax system of Zurich, are planning in the near future to introduce an electronic tax ling system. Recently the cantonal Armin Marti parliament has accepted the legal basis PwC Switzerland for this change. It can be assumed that more and more cantons will follow this example. The goals here are clearly to reduce the tax compliance burden for the tax payers, minimise the administrative costs for the tax authorities and reduce the incidence of data transfer errors. In 2011 the Swiss government has introduced several reforms in respect of the corporate tax system. Most importantly, the capital contribution principle has been introduced from 1 January 2011, bringing fundamental change to the Swiss corporate tax system as it eliminates a long standing disadvantage for the business location Switzerland and especially for its foreign investors. Under the new principle the Swiss 35% withholding tax is no longer levied upon the repayment to its shareholders of equity capital that was originally contributed by shareholders. However political discussion has been initiated as to whether the new system should be maintained and as a consequence may be limited in time. Total Tax Rate 30.1% Number of hours 63 Number of payments 19 Rules have also now been introduced Since autumn 2010 Switzerland has Switzerland has concluded a vast by almost half of the Swiss cantons to been in negotiations with several number of double tax treaties. enable the annual capital tax based on countries - mainly with Germany, the Currently, Switzerland is in negotiation the equity of a company to be set off USA and the UK – to nd a solution with 18 of its treaty partners against its annual income tax. More for the untaxed assets invested by concerning the incorporation of an cantons will follow. This leads de facto their residents with Swiss banks. The arbitration clause in accordance to an abolition of the annual capital tax ambition is to ful l the tax duty of the with the OECD model convention. for all corporate income tax payers in a taxable persons towards their foreign With this new arbitration clause signi cant pro t situation. authorities either through reporting to any double taxation should be the foreign scs or a nal withholding prevented even in cases where the Also in 2011 while the standard tax which is collected by the Swiss competent tax authorities do not nd a value-added tax rate has increased bank and remitted to the foreign mutualbsolution. from 7.6% up to 8% (respectively for country. During August 2011 the Swiss the reduced rate for goods for basic authorities initiated respective bilateral The goal is for Switzerland’s scal needs from 2.4% to 2.5% and for agreements with the governments of law to be compliant with the OECD the special rate for services with the Germany and the UK. Other European guidelines - in particular in the eld provision with lodging from 3.6% to countries have expressed an interest of tax information exchange - to avoid 3.8%), parliament is discussing ways in concluding similar agreements any sanctions by other countries. to simplify the VAT legislation by with Switzerland, e.g. Greece, France Therefore, it is the declared objective reducing the three rates that currently andbItaly. that Switzerland shall remain a exist down to two which would rst-rate place for foreign direct decrease the compliance burden for In 2011 the Global Forum on investments by maintaining and many Swiss tax payers. Transparency and Exchange of further developing its tax system Information for Tax Purposes published to stay internationally competitive a country report on Switzerland andbtransparent. recognising the signi cant effort made regarding the implementation of an effective information exchange with foreign tax administrations. New tax treaties with Switzerland are now fully in accordance with the internationalbstandards. Turkey A programme A country’s tax laws constitute a major to increase the component of its tax system, and the way in which they are drafted has a effectiveness signi cant impact on how easy it is of the Revenue to comply with them. Unlike some jurisdictions, Turkey’s tax laws are Administration designed on a basis of principles rather than in detail and are supplemented by regulations set out in communiqués Zeki Gunduz and circulars. The downside of this PwC Turkey approach is that the implementation of the tax laws becomes more subjective and can be highly prone to different interpretation with the added problem that there can be many instances where the general principles and communiqués fail to shed light on how the law should be applied. Turkish tax laws also evolve and change both materially and frequently. Certain sections of the Income Tax Law and supplementary guidance have been amended 11 times over the last three years. This has included the redrafting of Corporate Tax Law from scratch in 2006. And further major changes are in the pipeline to include the rewriting of Income Tax Law, Tax Procedural Law, and Special Consumption and Value Added Tax law – key tax laws that will have a signi cant effect onbbusinesses. Total Tax Rate 41.1% Number of hours 223 Number of payments 15 Corporate tax rates in Turkey are On the compliance side, the Revenue competitive and comparatively low Administration has undertaken some when compared with rates in some successful steps to offer tax-related European countries. However, indirect compliance materials in an electronic taxes represent a signi cant element form. This process began with tax of the Turkish tax system and the returns and was followed with certain high rates of these taxes make them forms and invoices. The intention more important than the direct ones. is also to convert legal books to an Indirect taxes accounted for 67% of electronic form. The ultimate aim all tax collection by Government in of this process is to allow taxpayers 2010. And most of the direct taxes are to le and keep track of all their tax collected through withholding rather matters electronically. In addition, than declared income, a method of tax of cers are developing their collection that has been implemented systems, making them faster and to deal with issues around unrecorded more ef cient. However, these new taxes and tax avoidance which have developments have not yet completely arisen in view of a lack of regular achieved their purpose as with each tax audits and understaf ng in the new implementation new requirements taxbauthority. have also been introduced, which has in turn generated new Understandably, indirect taxes bureaucraticbprocedures. (which are easy to impose) have therefore become an important tool In summary, there have been many for Government to help fund the improvements to the tax system public nances. The issues around involving signi cant effort by the the collection of direct taxes has authorities. While there remains long been a recognised problem area considerable room for improvement, and in recent years the Revenue the signs are hopeful that this will be Administration has embarked on achieved in future. a program to address the issues by increasing the effectiveness of tax collection through a number of measures including a dramatic increase in staf ng levels and the consolidation of the existing tax inspectors and their powers and duties under one organisational roof, to boost ef ciency. Vietnam Cumbersome Over the years of the study Vietnam From 2009, the standard corporate procedures place a has made a number of changes to its tax regime to help ease the burden income tax rate reduced from 28% to 25% and this was applied to heavy compliance on business. Signi cant efforts have both foreign invested and domestic burden on business been made to reduce the overall tax cost of Tax payers and to support enterprises. This was the second step of a uni cation process which started companies through the nancial crisis. in 2006 to unify the two separate tax Richard Irwin Improvements have also been made regimes that have existed for foreign to the tax compliance systems with a invested and domestic enterprises. And PwC Vietnam series of reforms, but there is clearly then, to support companies through more to do. the nancial crisis, an exemption from corporate income tax was granted From 2009, the standard corporate to all qualifying small and medium income tax rate reduced from 28% enterprises (SMEs) (and also some to 25% and this was applied to non-SMEs in certain sectors in 2009). both foreign invested and domestic Qualifying SMEs have also been enterprises. This was the second step allowed to defer the payment of its of a uni cation process which started 2010 tax liabilities for 12 months and in 2006 to unify the two separate tax to reduce their 2011 corporate income regimes that have existed for foreign tax liabilities by 30%. invested and domestic enterprises. And then, to support companies through the nancial crisis, there was a further 30% reduction in corporate income tax, and a tax payment deferral, granted to all qualifying small and medium enterprises (SMEs) for the last quarter of 2008 and 2009. As a result, the effective corporate income tax rate in 2009 was lower than 25% which was re ected in a lower Total Tax Rate in 2009. In 2010 the additional corporate income tax reduction was not available (although this has been reintroduced for 2011) but the ability to defer payment of 2010 tax liabilitiesbcontinued. Total Tax Rate 40.1% Number of hours 941 Number of payments 32 Improvements made to the compliance We acknowledge the efforts made The VAT system offers another good systems have been re ected in by Government to simplify the example of a system that places a the Paying Taxes indicators with a administrative procedures, with heavy administrative burden placed reduction in the number of hours initiatives such as the introduction on companies. VAT payers are required required by over 100 hours. But the of electronic tax ling and tax to compile a list of invoices for goods/ number of hours needed to comply payment, but the major practical issue services sold and a list of invoices is still high. The Law on the Tax remains that it is the time required for goods/services purchased which Administration System came into force for preparation of tax returns and has to be submitted with every VAT in July 2007, and this set the corner supporting documents that is the return. These lists do not contain any stone for a comprehensive reform of dif culty. The Paying Taxes report information necessary to determine the tax administration in Vietnam. shows this clearly. Although the time tax payable. The preparation of such However, its impact has not been fully needed for ling and paying taxes is reports is a time consuming exercise, realised due to a lack of coordination reasonable and has reduced over the in particular for companies with large in the drafting of the actual tax laws years, the majority of hours that are number of transactions. and the tax administration regulations needed by the case study company required to comply with them. From a to comply with its taxes are for the In May 2011, the Prime Minister practical perspective, this has meant preparation of tax returns, 840 of approved a Decision for reforming that the structure of tax returns the total of 941. There are several the tax system between 2011 and themselves has sometimes not re ected examples of this. 2020. Reducing the time spent on what is required by the tax legislation administrative procedures is one key and as a result taxpayers often struggle The corporate income tax regulations focus of the proposed reform, with to re ect certain transactions properly require the taxpayer to make many the aim of rede ning Vietnam as one in the tax return. When drafting and adjustments to the accounting pro t of Southeast Asia’s top ve countries amending tax legislation the practical in order to determine the taxable in terms of having an ef cient tax aspects of implementing the law need pro t. And these adjustments often jurisdiction, by 2015. to be better considered to ensure that require detailed support and tracking cumbersome administrative burdens throughout the year. One example It must be acknowledged that the are not created for the taxpayer. is the requirement to register the hours required to comply with social consumption level for manufacturing security contributions account for companies. A company must notify its more than 30% of the total hours consumption level in the beginning required. The tax administration of the year to the tax authorities, and reform implemented by the Ministry adjustments during the year also of Finance does not have an impact require noti cation, at latest with the on social security contribution since submission of the nal tax return. the collection of social security Costs for raw or other materials contribution rests with a separate which are used in excess to the organisation. No improvement in the noti ed consumption level are not tax administration of the social security deductible. This example shows that a system has been recognised over lot of administrative work is required recentbyears. which may also result in unnecessary disclosure of con dential data. Appendix 1 The Paying Taxes methodology Paying Taxes records the taxes and mandatory contributions that a medium-size company must pay in a given year as well as measuring the administrative burden of paying taxes and contributions. The project was developed and implemented as part of the Doing Business project by the World Bank and IFC in cooperation with PwC. Taxes and contributions measured include pro t or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, nancial transactions tax, waste collection taxes, vehicle and road taxes, and any other small taxes orbfees. As for previous years, the overall paying taxes ranking included in this report continues to use a simple average of the percentile rankings for each of the sub-indicators. These rankings are set out in Appendix 4. This year the rankings in this report differ from those used by the World Bank Group in the Doing Business 2012 report where a change in the ranking methodology is being piloted to address various issues that have been raised through discussions with stakeholders. The Doing Business project has applied a threshold to the ranking for the Total Tax Rate to seek to mitigate the effects of low Total TaxbRates. Paying Taxes measures all taxes and Figure A1.1: Paying taxes: tax compliance for a local manufacturing company contributions that are government Rankings are based on three-sub indicators mandated (at any level federal, state or local) and which apply to the standardised business and have an impact in its nancial statements. In doing so, Paying Taxes goes beyond Total Tax Rate (33.3%) Time (33.3%) Firm tax liability as % of profits Number of hours per year to the traditional de nition of a tax. As before all taxes borne prepare, file returns and pay taxes de ned for the purposes of government national accounts, taxes include only compulsory, unrequited payments to general government. Paying Taxes departs from this de nition because it measures imposed charges that affect Payments (33.3%) Number of tax payments per year business accounts, not government accounts. The main difference relates to labour contributions. The Paying Taxes measure in Doing Business includes government-mandated contributions paid by the employer to a requited private pension fund or workers’ insurance fund. The indicator includes, for example, Australia’s compulsory superannuation guarantee and workers’ compensation insurance. It should be noted that for the purpose of calculating the Total Tax Rate (de ned below), only taxes borne are included. For example, value added taxes are generally excluded (provided they are not irrecoverable) because they do not affect the accounting pro ts of the business that is, they are not re ected in the income statement. They are, however, included for the purpose of the compliance measures (time and payments), as they add to the burden of complying with the taxbsystem. The Paying Taxes study uses the To make the data comparable across performs general industrial or Doing Business case scenario to the economies included in the study, commercial activities. Speci cally, measure the taxes and contributions a number of assumptions about it produces ceramic owerpots paid by a standardised business and the business and the taxes and and sells them at retail. It does not the complexity of an economy’s tax contributions made by the business participate in foreign trade (no compliance system. This case scenario arebused. import or export) and does not uses a set of nancial statements handle products subject to a special and assumptions about transactions Assumptions about tax regime, for example, liquor made over the course of the year. Tax thebbusiness orbtobacco. experts from a number of different The business: at the beginning of 2010, owns rms in each economy (including PwC) two plots of land, one building, compute the taxes and mandatory is a limited liability, taxable machinery, of ce equipment, contributions due in their jurisdiction company. If there is more than one computers and one truck. It also based on the standardised case study type of limited liability company leases one truck. facts. Information is also compiled on in the economy, the limited does not qualify for investment the frequency of ling and payments as liability form most common among incentives or any bene ts apart well as time taken to comply with tax domestic rms is chosen. The from those related to the age or size laws in an economy. most common form is reported of the company. by incorporation lawyers or the has 60 employees four managers, The timeline summarises the annual statistical of ce. eight assistants and 48 workers. All process for collecting the Paying started operations on 1 January are nationals, and one manager is Taxesbdata. 2009. At that time the company also an owner. The company pays purchased all the assets shown for additional medical insurance The methodology for the Paying in its balance sheet and hired all for employees (not mandated by Taxes indicators has bene ted from itsbworkers. any law) as an additional bene t. discussion with members of the operates in the economy’s largest International Tax Dialogue and other business city. stakeholders, which has led to a is 100% domestically owned and re nement of the survey questions on has ve owners, all of whom are the number of hours required to pay natural persons. taxes and the collection of additional at the end of 2009, has a start- data on the labour tax wedge for up capital of 102 times income further research. perbcapita. Figure A1.2: Timeline summarising the annual process for collecting the Paying Taxes data January February March April May June Dialogue with governments on the results for individual economies and regions Input from users of the publication and other interested parties including international organisations and institutions Questionnaire is Distribution of the Completion of the Any suggested changes to the indicators are reviewed by the Doing questionnaire by questionnaire by investigated further with the contributors and Business managment the Doing Business contributors with then veri�ed with other third party contributors. and PwC Paying management team a facility to raise The change is only made if it is substantiated. Taxes teams. to the contributors queries with the Finalisation and input of the data into the World in each economy, Doing Business Bank and IFC model. Improvements to including PwC. management. indicator and non- indicator questions Review of the questionnaires submitted by the implemented. Doing Business management team. Identi�cation of issues arising from the data, and investigation of Clearance of revised these with the contributors (typically there are four questionnaire by rounds of interaction between the contributors and Doing Business the Doing Business managment team). management team. Calculation and �nalisation of the indicators and rankings. Clearance of these �gures with the Doing Business management. In addition, in some economies is subject to a series of detailed The number of times the company reimbursable business travel and assumptions on expenses and pays taxes and contributions in client entertainment expenses are transactions to further standardise a year is the number of different considered fringe bene ts. When the case. All nancial statement taxes or contributions multiplied applicable, it is assumed that the variables are proportional to 2005 by the frequency of payment (or company pays the fringe bene t tax income per capita. For example, withholding) for each tax. The on this expense or that the bene t the owner who is also a manager frequency of payment includes becomes taxable income for the spends 10% of income per capita advance payments (or withholding) employee. The case study assumes on travelling for the company as well as regular payments no additional salary additions for (20% of this owner’s expenses (orbwithholding). meals, transportation, education are purely private, 20% are for or others. Therefore, even when entertaining customers and 60% for such bene ts are frequent, they businessbtravel). are not added to or removed from the taxable gross salaries Assumptions about the taxes to arrive at the labour tax or andbcontributions contributionbcalculation. All the taxes and contributions has a turnover of 1,050 times recorded are those paid in the income per capita. second year of operation (calendar makes a loss in the rst year year 2010). A tax or contribution ofboperation. is considered distinct if it has a has a gross margin (pre-tax) of 20% different name or is collected (i.e. sales are 120% of the cost of by a different agency. Taxes and goods sold). contributions with the same name distributes 50% of its net pro ts as and agency, but charged at different dividends to the owners at the end rates depending on the business, of the second year. are counted as the same tax sells one of its plots of land at orbcontribution. a pro t at the beginning of the secondbyear. has annual fuel costs for its trucks equal to twice income per capita. July August September October November December Feedback of the �nal results to Feedback of the Launch of the Doing Launch of the Paying Taxes report and online government representatives. �nal results to the Business report and data. Regional launch events for the Paying contributors online data. Taxes report. Drafting of the World Bank and IFC Paying Taxes chapter for inclusion in the Doing Drafting of the Business publication and clearance with Paying Taxes Doing Business management. publication. Independent PwC analysis of indicator and non-indicator data to determine a PwC perspective. Focus on geographical and economic groupings. What does Paying Taxes Time measure" Time is recorded in hours per year. Tax payments The indicator measures the time taken The tax payments indicator re ects the to prepare, le and pay three major total number of taxes and contributions types of taxes and contributions: the paid, the method of payment, the corporate income tax, value added or frequency of payment, the frequency sales tax, and labour taxes, including of ling and the number of agencies payroll taxes and social contributions. involved for this standardised case Preparation time includes the time study company during the second to collect all information necessary year of operation (table A.1.1). It to compute the tax payable and to includes consumption taxes paid by calculate the amount payable. If the company, such as sales tax or value separate accounting books must be added tax. These taxes are traditionally kept for tax purposes – or separate collected from the consumer on behalf calculations made – the time associated of the tax agencies. Although they with these processes is included. do not affect the income statements This extra time is included only if of the company, they add to the the regular accounting work is not administrative burden of complying enough to ful l the tax accounting with the tax system and so are included requirements. Filing time includes in the tax payments indicator. the time to complete all necessary tax return forms and le the relevant The number of payments takes into returns at the tax authority. Payment account electronic ling. Where time considers the hours needed to full electronic ling and payment is make the payment online or at the allowed and it is used by the majority tax authorities. Where taxes and of medium-size businesses, the tax contributions are paid in person, the is counted as paid once a year even time includes delays while waiting. if lings and payments are more frequent. For payments made through third parties, such as tax on interest paid by a nancial institution or fuel tax paid by a fuel distributor, only one Table A1.1: What do the paying taxes indicators measure? payment is included even if payments Tax payments for a manufacturing company in 2010 (number per year adjusted for are more frequent. electronic and joint �ling and payment) Total number of taxes and contributions paid, including consumption taxes (value added tax, Where two or more taxes or sales tax or goods and service tax) contributions are led for and paid jointly using the same form, each Method and frequency of �ling and payment of these joint payments is counted Time required to comply with 3 major taxes (hours per year) once. For example, if mandatory health insurance contributions and Collecting information and computing the tax payable mandatory pension contributions are Completing tax return forms, �ling with proper agencies led for and paid together, only one of Arranging payment or withholding these contributions would be included in the number of payments. Preparing separate mandatory tax accounting books, if required Total Tax Rate (% of pro�t before all taxes) Pro�t or corporate income tax Social contributions and labour taxes paid by the employer Property and property transfer taxes Dividend, capital gains and �nancial transactions taxes Waste collection, vehicle, road and other taxes Total Tax Rate Commercial pro t is computed as The Total Tax Rate measures the sales minus cost of goods sold, minus amount of taxes and mandatory gross salaries, minus administrative contributions borne by the business in expenses, minus other expenses, the second year of operation, expressed minus provisions, plus capital gains as a share of commercial pro t. Paying (from the property sale) minus interest Taxes 2012 reports the Total Tax Rate expense, plus interest income and for calendar year 2010. The total minus commercial depreciation. To amount of taxes borne is the sum of all compute the commercial depreciation, the different taxes and contributions a straight-line depreciation method payable after accounting for allowable is applied, with the following rates: deductions and exemptions. The taxes 0% for the land, 5% for the building, withheld (such as personal income 10% for the machinery, 33% for tax) or collected by the company the computers, 20% for the of ce and remitted to the tax authorities equipment, 20% for the truck and 10% (such as Value Added Tax, sales tax or for business development expenses. goods and service tax) but not borne Commercial pro t amounts to 59.4 by the company are excluded. The times income per capita. taxes included can be divided into ve categories: pro t or corporate income The methodology for calculating the tax, social contributions and labour Total Tax Rate is broadly consistent taxes paid by the employer (in respect with the Total Tax Contribution of which all mandatory contributions framework developed by PwC and are included, even if paid to a private the calculation within this framework entity such as a requited pension fund), for taxes borne. But while the work property taxes, turnover taxes and undertaken by PwC is usually based other taxes (such as municipal fees and on data received from the largest vehicle and fuel taxes). companies in the economy, Doing Business focuses on a case study for a The Total Tax Rate is designed to standardised medium-size company. provide a comprehensive measure of the cost of all the taxes a business bears. It differs from the statutory Table A1.2: Computing the Total Tax Rate for Norway tax rate, which merely provides the Statutory Statutory Actual tax Commercial Total Tax factor to be applied to the tax base. rate tax base payable pro�t* Rate Type of tax r b a=rxb c t = a/c In computing the Total Tax Rate, (tax base) NKr NKr NKr the actual tax payable is divided by Corporate 28.0% 20,612,719 5,771,561 23,651,183 24.4% commercial pro t. Data for Norway income tax is shown in gure A1.2 to illustrate (taxable income) thebcalculation. Social security 14.1% 26,684,645 3,762,535 23,651,183 15.9% contributions Commercial pro t is essentially net (taxable pro t before all taxes borne. It differs wages) from the conventional pro t before Fuel tax NKr 4 per litre 74,247 297,707 23,651,183 1.3% tax, reported in nancial statements. (fuel price) litres In computing pro t before tax, many Total 9,831,803 41.6% of the taxes borne by a rm are deductible. In computing commercial pro t, these taxes are not deductible. Commercial pro t therefore presents a clear picture of the actual pro t of a business before any of the taxes it bears in the course of the scal year. Appendix 2 About Doing Business: measuring for impact Commentary by the World Bank and IFC A vibrant private sector – with rms The Doing Business project takes a The rst Doing Business report, making investments, creating jobs and different approach from perception published in 2003, covered ve improving productivity – promotes surveys. It looks at domestic, primarily indicator sets and 133 economies. This growth and expands opportunities small and medium-size companies year’s report covers 11 indicator sets for poor people. To foster a vibrant and measures the regulations applying and 183 economies. Ten topics are private sector, governments around the to them through their life cycle. included in the aggregate ranking on world have implemented wide-ranging Based on standardised case studies, the ease of doing business and other reforms, including price liberalisation it presents quantitative indicators summary measures.37 The project and macroeconomic stabilisation on business regulation that can be has bene ted from feedback from programmes. But governments compared across 183 economies and governments, academics, practitioners committed to the economic health over time. This approach complements and reviewers.38 The initial goal of their country and opportunities the perception surveys in exploring remains: to provide an objective basis for its citizens focus on more than the major constraints for businesses, for understanding and improving the macroeconomic conditions. They as experienced by the businesses regulatory environment for business. also pay attention to the quality of themselves and as set out in the laws, regulations and institutional regulations that apply to them. arrangements that shape daily economic activity. Rules and regulations are under the direct control of policy makers – and Until ten years ago, however, policy makers intending to change the there were no globally available experience and behaviour of businesses indicator sets for monitoring such will often start by changing rules and microeconomic factors and analysing regulations that affect them. Doing their relevance. The rst efforts to Business goes beyond identifying that address this gap, in the 1980s, drew a problem exists and points to speci c on perceptions data from expert or regulations or regulatory procedures business surveys that capture often that may lend themselves to reform. one-time experiences of businesses. And its quantitative measures of Such surveys can be useful gauges business regulation enable research of economic and policy conditions. on how speci c regulations affect rm But few perception surveys provide behaviour and economicboutcomes. indicators with a global coverage that are updated annually. 37 For more details on how the aggregate rankings are created, please see www.doingbusiness.org. 38 This has included a review by the World Bank Group Independent Evaluation Group (2008) as well as ongoing input from the International Tax Dialogue. What Doing Business covers The Doing Business project An entrepreneur’s willingness to try a encompasses two types of data. The new idea may be in uenced by many rst come from readings of laws and factors, including perceptions of how regulations by both the local expert easy (or dif cult) it will be to deal respondents and Doing Business. with the array of rules that de ne and The second are time-and-motion underpin the business environment. indicators that measure the ef ciency Whether the entrepreneur decides in achieving a regulatory goal (such to move forward with the idea, to as granting the legal identity of a abandon it or to take it elsewhere might business). Within the time-and-motion depend in large part on how simple it indicators, cost estimates are recorded is to comply with the requirements for from of cial fee schedules where opening a new business or getting a applicable. A regulatory process such construction permit and how ef cient as starting a business or registering the mechanisms are for resolving property is broken down into clearly commercial disputes or dealing with de ned steps and procedures. The time insolvency. Doing Business provides estimates for each procedure are based quantitative measures of regulations on the informed judgment of expert for starting a business, dealing respondents who routinely administer with construction permits, getting or advise on the relevant regulations.39 electricity, registering property, getting Here, Doing Business builds on credit, protecting investors, paying Hernando de Soto’s pioneering work taxes, trading across borders, enforcing in applying the time-and-motion contracts and resolving insolvency – approach rst used by Frederick as they apply to domestic small and Taylor to revolutionise the production medium-size enterprises. It also looks of the Model T Ford. De Soto used at regulations on employingbworkers. the approach in the 1980s to show the obstacles to setting up a garment A fundamental premise of Doing factory on the outskirts of Lima.40 Business is that economic activity requires good rules. These include rules that establish and clarify property rights and reduce the cost of resolving disputes, rules that increase the predictability of economic interactions and rules that provide contractual partners with core protections against abuse. The objective: regulations designed to be simple and ef cient in implementation and accessible to all who need to use them. Accordingly, some Doing Business indicators give a higher score for more regulation, such as stricter disclosure requirements in related-party transactions. Some give a higher score for a simpli ed way of implementing existing regulation, such as completing business start-up formalities in a one-stop shop. 39 Local experts in 183 economies are surveyed annually to collect and update the data. The local experts for each economy are listed on the Doing Business website (http://www.doingbusiness.org). 40 De Soto 2000. What Doing Business does Doing Business also does not In areas where regulation is complex not cover attempt to measure all costs and and highly differentiated, the Just as important as knowing what bene ts of a particular law or standardised case used to construct Doing Business does is to know what regulation to society as a whole. the Doing Business indicator needs it does not do – to understand what The paying taxes indicators, to be carefully de ned. Where limitations must be kept in mind in for example, measure the Total relevant, the standardised case interpreting the data. Tax Rate, which is a cost to assumes a limited liability company business. The indicators do not or its legal equivalent. This choice Limited in scope measure, nor are they intended to is in part empirical: private, limited Doing Business focuses on 11 topics, measure, the social and economic liability companies are the most with the speci c aim of measuring the programs funded through tax prevalent business form in many regulation relevant to the life cycle of a revenues. Measuring business economies around the world. The domestic rm. Accordingly: laws and regulations provides choice also re ects one focus of Doing one input into the debate on the Business: expanding opportunities Doing Business does not measure regulatory burden associated with for entrepreneurship. Investors are all aspects of the business achieving regulatory objectives. encouraged to venture into business environment that matter to Those objectives can differ when potential losses are limited to rms or investors – or all factors acrossbeconomies. their capital participation. that affect competitiveness. It does not, for example, measure Based on standardised Focused on the formal sector security, corruption, market size, casebscenarios In constructing the indicators, Doing macroeconomic stability, the Doing Business indicators are built on Business assumes that entrepreneurs state of the nancial system, the the basis of standardised case scenarios are knowledgeable about all labour skills of the population with speci c assumptions, such as the regulations in place and comply with or all aspects of the quality business being located in the largest them. In practice, entrepreneurs may of infrastructure. Nor does it business city of the economy. Economic spend considerable time nding out focus on regulations speci c to indicators commonly make limiting where to go and what documents to foreignbinvestment. assumptions of this kind. In ation submit. Or they may avoid legally statistics, for example, are often based required procedures altogether – by While Doing Business focuses on prices of a set of consumer goods in not registering for social security, on the quality of the regulatory a few urban areas. forbexample. framework, it is not all-inclusive; it does not cover all regulations Such assumptions allow global Where regulation is particularly in any economy. As economies coverage and enhance comparability. onerous, levels of informality are and technology advance, more But they come at the expense of higher. Informality comes at a cost: areas of economic activity are generality. Doing Business recognises rms in the informal sector typically being regulated. For example, the limitations of including data on grow more slowly, have poorer access the European Union’s body of only the largest business city. Business to credit and employ fewer workers laws (acquis) has now grown to regulation and its enforcement, – and their workers remain outside no fewer than 14,500 rule sets. particularly in federal states and large the protections of labour law.41 All Doing Business covers 11 areas of economies, may differ across the this may be even more so for female- a company’s life cycle, through 11 country. Recognising governments’ owned businesses, according to speci c sets of indicators. These interest in such variation, Doing country-speci c research.42 Firms in indicator sets do not cover all Business has complemented its global the informal sector are also less likely aspects of regulation in the area of indicators with subnational studies in to pay taxes. Doing Business measures focus. For example, the indicators a range of economies. This year Doing one set of factors that help explain the on starting a business or protecting Business also conducted a pilot study occurrence of informality and give investors do not cover all aspects on the second largest city in three policy makers insights into potential of commercial legislation. The large economies to assess within- areas of regulatory reform. Gaining employing workers indicators countrybvariations. a fuller understanding of the broader do not cover all areas of labour business environment, and a broader regulation. The current set of perspective on policy challenges, indicators does not, for example, requires combining insights from include measures of regulations Doing Business with data from other addressing safety at work or the sources, such as the World Bank Group right of collective bargaining. EnterprisebSurveys.43 41 Schneider 2005; La Porta and Shleifer 2008. 42 Amin 2011. 43 http://www.enterprisesurveys.org. Methodology and data The Doing Business approach to data Doing Business covers 183 economies – collection contrasts with that of rm including small economies and some of surveys, which capture often one- the poorest economies, for which little time perceptions and experiences or no data are available in other data of businesses. A corporate lawyer sets. The Doing Business data are based registering 100–150 businesses a year on domestic laws and regulations as will be more familiar with the process well as administrative requirements. than an entrepreneur, who will register (For a detailed explanation of the a business only once or maybe twice. A Doing Business methodology, see the bankruptcy attorney or judge dealing Doing Business website.) with dozens of cases a year will have more insight into bankruptcy than a Information sources for the data manager of a company who may have Most of the Doing Business indicators never undergone the process. are based on laws and regulations. In addition, most of the cost indicators Doing Business respondents are backed by of cial fee schedules. Over the past nine years more than Doing Business respondents both 12,000 professionals in 183 economies ll out written questionnaires and have assisted in providing the data that provide references to the relevant laws, inform the Doing Business indicators. regulations and fee schedules, aiding This year’s report draws on the inputs data checking and quality assurance. of more than 9,000 professionals. Having representative samples of The Doing Business website indicates respondents is not an issue, as the texts the number of respondents for of the relevant laws and regulations each economy and each indicator. are collected and answers checked Respondents are professionals or forbaccuracy. government of cials who routinely administer or advise on the legal and For some indicators – for example, regulatory requirements covered in those on dealing with construction each Doing Business topic. They are permits, enforcing contracts and selected on the basis of their expertise resolving insolvency – the time in the speci c areas covered by Doing component and part of the cost Business. Because of the focus on legal component (where fee schedules are and regulatory arrangements, most of lacking) are based on actual practice the respondents are legal professionals rather than the law on the books. This such as lawyers, judges or notaries. introduces a degree of judgment. The The credit information survey is Doing Business approach has therefore answered by of cials of the credit been to work with legal practitioners or registry or bureau. Freight forwarders, professionals who regularly undertake accountants, architects and other the transactions involved. Following professionals answer the surveys the standard methodological approach related to trading across borders, taxes for time-and-motion studies, Doing and construction permits. Business breaks down each process or transaction, such as starting and legally operating a business, into separate steps to ensure a better estimate of time. The time estimate for each step is given by practitioners with signi cant and routine experience in the transaction. Development of the methodology The Doing Business 2012 report, the Data adjustments The methodology for calculating each latest in the series, includes several All changes in methodology are indicator is transparent, objective and changes. Firstly, the ease of doing explained on the Doing Business easily replicable. Leading academics business ranking includes getting website. In addition, data time series collaborated in the development of electricity as a new topic. The getting for each indicator and economy are the indicators, ensuring academic electricity indicators were introduced available on the website, beginning rigour. Eight of the background as a pilot in Doing Business 2010 and with the rst year the indicator or papers underlying the indicators Doing Business 2011, which presented economy was included in the report. have been published in leading the results in an annex. During the To provide a comparable time series for economicbjournals.44 pilot phase the methodology was research, the data set is back-calculated reviewed by experts, and data on the to adjust for changes in methodology Doing Business uses a simple averaging time, cost and procedures to obtain an and any revisions in data due to approach for weighting component electricity connection were collected corrections. The data set is not back- indicators and calculating rankings. for the full set of 183 economies. To calculated for year-to-year changes in Other approaches were explored, avoid double counting, procedures income per capita. The website also including using principal components related to getting an electricity makes available all original data sets and unobserved components.45 connection have been removed used for background papers. They turn out to yield results from the dealing with construction nearly identical to those of simple permitsbindicators.48 Information on data corrections averaging. Thus Doing Business uses is provided on the website. A the simplest method: weighting all Other improvements in the transparent complaint procedure topics equally and, within each topic, methodology were made to the allows anyone to challenge the giving equal weight to each of the employing workers indicators and data. If errors are con rmed after a topicbcomponents.46 the getting credit (legal rights) data veri cation process, they are indicators, in addition to the removal expeditiouslybcorrected. Improvements to the methodology of the procedures related to getting an The methodology has undergone electricity connection from the dealing continual improvement over the with construction permits indicators. years.47 Changes have been made It also includes changes in the ranking mainly in response to suggestions methodology for paying taxes. For providing new insights. For enforcing further explanations on the speci c contracts, for example, the amount of changes in the ranking methodology the disputed claim in the case study for paying taxes applied in the global was increased from 50% to 200% of Doing Business project, please refer to income per capita after the rst year www.doingbusiness.org/methodology of data collection, as it became clear that smaller claims were unlikely to go tobcourt. Another change relates to starting a business. The minimum capital requirement can be an obstacle for potential entrepreneurs. Initially Doing Business measured the required minimum capital regardless of whether it had to be paid up front or not. In many economies only part of the minimum capital has to be paid up front. To re ect the actual potential barrier to entry, the paid-in minimum capital has been used rather than the required minimum capital. 44 All background papers are available on the Doing Business website (http://www.doingbusiness.org). 45 For more details, see the chapter on the ease of doing business and distance to frontier in Doing Business 2012. 46 A technical note on the different aggregation and weighting methods is available on the Doing Business website (http://www.doingbusiness.org). 47 All changes in methodology are explained in this year’s report and in previous years’ reports back to Doing Business 2007 (data notes and previous years’ reports are available at http://www.doingbusiness.org). 48 Previous years’ data on dealing with construction permits are adjusted to reflect this change. They are made available on the Doing Business website under “historical data� (http://www.doingbusiness.org). Appendix 3 The Paying Taxes reforms Summarised by the World Bank and IFC These reforms were implemented between June 2010 and May 2011. Key Doing Business reform making it easier to pay taxes (as measured by the indicators) Doing Business reform making it more dif cult to pay taxes (as measured by the indicators) Armenia Burundi Côte d’Ivoire Armenia eased tax compliance by Burundi made paying taxes easier Côte d’Ivoire eliminated a tax on reducing the number of payments for for companies by reducing the rms, the contribution for national corporate income tax, social security payment frequency for social reconstruction (contribution pour la contributions, property and land taxes. security contributions from monthly reconstruction nationale). It also introduced mandatory electronic tobquarterly. ling and payment for major taxes. Canada Czech Republic Belarus Canada made paying taxes easier and The Czech Republic revised its tax Belarus abolished several taxes, less costly for companies by reducing legislation to simplify provisions including turnover and sales taxes, and pro t tax rates, eliminating the relating to administrative procedures simpli ed compliance with corporate Ontario capital tax and harmonising and relationships between tax income, value added and other taxes by salesbtaxes. authorities and taxpayers. reducing the frequency of lings and payments and facilitating electronic ling and payment. Colombia Estonia Colombia eased the administrative In Estonia a municipal sales tax burden of paying taxes for rms by introduced in Tallinn made paying Belize establishing mandatory electronic taxes costlier for rms, though a later Belize made paying taxes easier for ling and payment for some of the parliamentary measure abolished local rms by improving electronic ling major taxes. sales taxes effective 1 January 2012. and payment for social security contributions, an option now used by the majority of taxpayers. Congo, Democratic Republic of Finland The Democratic Republic of Congo Finland simpli ed reporting and made paying taxes easier for rms by payment for the value added tax and Bolivia replacing the sales tax with a value labour tax. Bolivia raised social security added tax. contribution rates for employers. Gambia Costa Rica The Gambia reduced the minimum In Costa Rica online payment of turnover tax and corporate income social security contributions is now taxbrates. widespread and used by the majority ofbtaxpayers. Georgia India Mexico Georgia made paying taxes easier for India eased the administrative burden Mexico continued to ease the rms by simplifying the reporting of paying taxes for rms by introducing administrative burden of paying taxes for value added tax and introducing mandatory electronic ling and for rms by ending the requirement electronic ling and payment of taxes. payment for value added tax. to le a yearly value added tax return and reducing ling requirements for otherbtaxes. Greece Korea, Republic of. Greece reduced its corporate income Korea eased the administrative burden Montenegro tax rate. of paying taxes for rms by merging Montenegro made paying taxes easier several taxes, allowing four labour and less costly for rms by abolishing taxes and contributions to be paid a tax, reducing the social security jointly and continuing to increase the contribution rate and merging several use of the online tax payment system. returns into a single uni ed one. Honduras Honduras made paying taxes costlier for rms by raising the solidarity taxbrate. Kyrgyz Republic Morocco The Kyrgyz Republic made paying Morocco eased the administrative taxes costlier for rms by introducing a burden of paying taxes for rms real estate tax, though it also reduced by enhancing electronic ling and the sales tax rate. payment of the corporate income tax Hungary and value added tax. Hungary made paying taxes costlier for rms by introducing a sector- speci cbsurtax. Malaysia New Zealand Malaysia made paying taxes costlier New Zealand reduced its corporate for rms by reintroducing the real income tax rate and fringe bene t estate capital gains tax—but also made taxbrate. Iceland tax compliance easier by improving Iceland made paying taxes easier and electronic systems and the availability less costly for rms by abolishing a tax. of software. Nicaragua Nicaragua made paying taxes easier for companies by promoting electronic ling and payment of the major taxes, an option now used by the majority ofbtaxpayers. Oman Russian Federation Togo Oman enacted a new income tax law Russia increased the social security Togo reduced its corporate income that rede ned the scope of taxation. contribution rate for employers. taxbrate. Pakistan Rwanda Turkey Pakistan increased the pro t tax rate Rwanda reduced the frequency of value Turkey lowered the social security for small rms. added tax lings by companies from contribution rate for companies by monthly to quarterly. offering them a 5% rebate. Paraguay Seychelles Ukraine Paraguay made paying taxes more The Seychelles made paying taxes Ukraine made paying taxes easier burdensome for companies by less costly for rms by eliminating the and less costly for rms by revising introducing new tax declarations that social security tax. and unifying tax legislation, reducing must be led monthly. corporate income tax rates and unifying social security contributions. Sri Lanka Peru Sri Lanka made paying taxes less Peru made paying taxes easier for costly for businesses by abolishing Venezuela, República companies by improving electronic the turnover tax and social security Bolivariana de ling and payment of the major contribution and by reducing corporate Venezuela made paying taxes costlier taxes and promoting the use of the income tax, value added tax and for rms by doubling the municipal electronic option among the majority national building tax rates. economic activities tax (sales tax). of taxpayers. St. Kitts and Nevis Yemen, Republic of. Romania St. Kitts and Nevis made paying Yemen enacted a new tax law that Romania made paying taxes easier for taxes easier by introducing a value reduced the general corporate tax companies by introducing an electronic addedbtax. rate from 35% to 20% and abolished payment system and a uni ed return all tax exemptions except those for social security contributions. It also granted under the investment law for abolished the annual minimum tax. investmentbprojects. Appendix 4 The data tables Table 1: Rankings 112 Table 2: Tax payments 116 Table 3: Time to comply 120 Table 4: Total Tax Rate 124 Table 1: Rankings Table 1: Rankings49 Economy Overall Tax payments Time to comply Total Tax Rate Afghanistan 58 17 121 79 Albania 152 148 148 88 Algeria 164 96 162 172 Angola 149 103 126 148 Antigua and Barbuda 134 172 80 103 Argentina 144 29 157 180 Armenia 153 120 166 100 Australia 52 40 23 133 Austria 78 49 57 147 Azerbaijan 77 63 96 94 Bahamas, The 54 63 5 134 Bahrain 13 89 3 10 Bangladesh 97 78 131 70 Belarus 156 63 172 157 Belgium 73 40 50 153 Belize 53 96 45 59 Benin 170 170 113 166 Bhutan 62 8 119 98 Bolivia 179 143 182 175 Bosnia and Herzegovina 118 137 159 28 Botswana 25 68 48 18 Brazil 150 29 183 168 Brunei Darussalam 22 92 20 16 Bulgaria 84 59 166 36 Burkina Faso 147 151 113 110 Burundi 124 87 119 127 Cambodia 59 135 60 22 Cameroon 171 148 172 136 Canada 11 17 37 39 Cape Verde 101 138 65 85 Central African Republic 177 168 168 150 Chad 180 168 178 163 Chile 50 29 134 27 China 121 11 155 161 Colombia 92 29 70 174 Comoros 96 75 21 181 Congo, Democratic Republic of 165 107 140 183 Congo, Republic of 182 175 171 165 Costa Rica 138 103 105 151 Côte d'Ivoire 159 176 113 118 Croatia 46 59 73 54 Cyprus 37 92 47 24 Czech Republic 117 17 169 137 Denmark 15 38 41 33 Djibouti 65 123 14 91 Dominica 70 129 29 83 Dominican Republic 91 29 136 105 49 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 1: Rankings Table 1: Rankings49 Economy Overall Tax payments Time to comply Total Tax Rate Ecuador 85 17 172 73 Egypt, Arab Rep. 145 96 161 111 El Salvador 146 164 135 71 Equatorial Guinea 167 151 165 125 Eritrea 120 63 86 177 Estonia 47 17 16 154 Ethiopia 48 68 74 45 Fiji 76 111 54 87 Finland 21 17 19 92 France 55 11 38 164 Gabon 141 91 164 109 Gambia, The 178 161 151 182 Georgia 39 4 152 14 Germany 86 44 88 130 Ghana 87 111 91 61 Greece 79 38 91 128 Grenada 88 102 42 121 Guatemala 123 87 143 101 Guinea 176 171 158 149 Guinea-Bissau 136 151 82 124 Guyana 112 123 110 77 Haiti 116 151 64 99 Honduras 140 155 91 116 Hong Kong SAR, China 3 1 12 23 Hungary 114 46 124 143 Iceland 49 96 42 51 India 147 111 107 156 Indonesia 130 162 112 67 Iran, Islamic Rep. 125 75 143 117 Iraq 59 46 133 38 Ireland 5 17 9 31 Israel 81 111 101 46 Italy 133 54 127 170 Jamaica 172 181 156 123 Japan 119 49 139 138 Jordan 29 89 26 34 Kazakhstan 17 11 68 41 Kenya 166 138 154 140 Kiribati 9 11 29 50 Korea, Rep. 44 44 96 42 Kosovo 43 111 55 11 Kuwait 12 54 27 12 Kyrgyz Republic 162 163 83 171 Lao PDR 122 120 147 60 Latvia 62 11 128 86 Lebanon 41 68 62 44 Lesotho 64 78 136 13 49 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 1: Rankings Table 1: Rankings49 Economy Overall Tax payments Time to comply Total Tax Rate Liberia 95 111 52 113 Lithuania 57 40 61 115 Luxembourg 14 84 6 19 Macedonia, FYR 20 95 28 4 Madagascar 72 84 77 80 Malawi 31 68 51 37 Malaysia 28 46 40 62 Maldives 1 1 1 3 Mali 163 173 113 142 Marshall Islands 93 78 34 162 Mauritania 175 129 177 169 Mauritius 9 11 53 26 Mexico 106 8 145 144 Micronesia, Fed. Sts. 89 78 34 155 Moldova 109 158 98 47 Mongolia 66 138 69 25 Montenegro 114 143 149 21 Morocco 108 59 102 141 Mozambique 104 129 99 64 Namibia 100 129 150 5 Nepal 111 120 138 49 Netherlands 34 29 33 96 New Zealand 27 17 58 65 Nicaragua 155 143 80 167 Niger 142 138 113 114 Nigeria 138 123 180 56 Norway 19 4 17 104 Oman 8 49 7 20 Pakistan 158 155 170 72 Palau 94 68 34 173 Panama 169 164 163 120 Papua New Guinea 103 111 71 107 Paraguay 131 123 152 69 Peru 80 29 132 97 Philippines 135 155 72 129 Poland 127 96 130 112 Portugal 74 17 121 108 Puerto Rico 110 58 87 159 Qatar 2 1 3 6 Romania 154 182 89 119 Russian Federation 102 29 128 132 Rwanda 33 63 46 48 Samoa 68 129 91 17 São Tomé and Principe 137 143 160 55 Saudi Arabia 7 49 11 9 Senegal 174 173 176 126 Serbia 143 177 125 63 49 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 1: Rankings Table 1: Rankings49 Economy Overall Tax payments Time to comply Total Tax Rate Seychelles 26 78 9 53 Sierra Leone 105 96 146 52 Singapore 4 7 15 32 Slovak Republic 129 103 100 135 Slovenia 83 83 109 68 Solomon Islands 30 111 12 30 South Africa 36 29 76 58 Spain 40 17 66 90 Sri Lanka 173 180 108 179 St. Kitts and Nevis 132 127 78 145 St. Lucia 51 107 18 66 St. Vincent and the Grenadines 70 127 25 89 Sudan 99 143 62 78 Suriname 38 59 75 35 Swaziland 56 111 22 81 Sweden 44 4 32 146 Switzerland 16 68 8 43 Syrian Arab Republic 107 68 140 93 Taiwan, China 67 54 104 75 Tajikistan 168 178 91 176 Tanzania 128 158 58 122 Thailand 97 84 111 84 Timor-Leste 23 8 123 1 Togo 161 164 113 139 Tonga 35 75 55 29 Trinidad and Tobago 81 135 83 40 Tunisia 61 17 44 158 Turkey 75 54 90 102 Uganda 90 107 85 76 Ukraine 181 183 175 152 United Arab Emirates 6 49 2 7 United Kingdom 18 17 24 82 United States 69 40 66 131 Uruguay 160 164 140 106 Uzbekistan 157 138 79 178 Vanuatu 24 103 29 2 Venezuela, R.B. 183 179 179 160 Vietnam 151 107 181 95 West Bank and Gaza 31 92 49 15 Yemen, Rep. 113 148 106 57 Zambia 42 129 38 8 Zimbabwe 126 160 103 74 49 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 2: Tax payments Table 2: Tax payments Number of payments Rank Total tax Pro�t tax Labour tax Other taxes Tax payments Economy payments payments payments payments rank Afghanistan 8 1 0 7 17 Albania 44 13 12 19 148 Algeria 29 0 12 17 96 Angola 31 4 12 15 103 Antigua and Barbuda 57 13 24 20 172 Argentina 9 1 1 7 29 Armenia 34 7 7 20 120 Australia 11 1 4 6 40 Austria 14 1 3 10 49 Azerbaijan 18 1 12 5 63 Bahamas, The 18 0 12 6 63 Bahrain 25 0 24 1 89 Bangladesh 21 6 0 15 78 Belarus 18 1 13 4 63 Belgium 11 1 2 8 40 Belize 29 0 1 28 96 Benin 55 5 24 26 170 Bhutan 6 2 0 4 8 Bolivia 42 1 12 29 143 Bosnia and Herzegovina 40 12 12 16 137 Botswana 19 6 0 13 68 Brazil 9 2 2 5 29 Brunei Darussalam 27 1 24 2 92 Bulgaria 17 1 1 15 59 Burkina Faso 46 2 24 20 151 Burundi 24 1 8 15 87 Cambodia 39 12 12 15 135 Cameroon 44 13 12 19 148 Canada 8 1 3 4 17 Cape Verde 41 3 24 14 138 Central African Republic 54 4 24 26 168 Chad 54 12 24 18 168 Chile 9 1 1 7 29 China 7 2 1 4 11 Colombia 9 1 1 7 29 Comoros 20 2 0 18 75 Congo, Democratic Republic of 32 1 16 15 107 Congo, Republic of 61 5 36 20 175 Costa Rica 31 5 1 25 103 Côte d'Ivoire 62 3 24 35 176 Croatia 17 1 12 4 59 Cyprus 27 5 12 10 92 Czech Republic 8 1 2 5 17 Denmark 10 3 1 6 38 Djibouti 35 5 12 18 123 Dominica 37 5 12 20 129 Table 2: Tax payments Table 2: Tax payments Number of payments Rank Total tax Pro�t tax Labour tax Other taxes Tax payments Economy payments payments payments payments rank Dominican Republic 9 1 4 4 29 Ecuador 8 2 2 4 17 Egypt, Arab Rep. 29 1 12 16 96 El Salvador 53 13 24 16 164 Equatorial Guinea 46 1 24 21 151 Eritrea 18 2 0 16 63 Estonia 8 1 0 7 17 Ethiopia 19 2 0 17 68 Fiji 33 4 14 15 111 Finland 8 1 3 4 17 France 7 1 2 4 11 Gabon 26 3 4 19 91 Gambia, The 50 5 13 32 161 Georgia 4 1 0 3 4 Germany 12 5 1 6 44 Ghana 33 6 12 15 111 Greece 10 1 1 8 38 Grenada 30 1 12 17 102 Guatemala 24 1 12 11 87 Guinea 56 2 36 18 171 Guinea-Bissau 46 5 12 29 151 Guyana 35 6 12 17 123 Haiti 46 6 25 15 151 Honduras 47 5 13 29 155 Hong Kong SAR, China 3 1 1 1 1 Hungary 13 3 3 7 46 Iceland 29 1 13 15 96 India 33 2 24 7 111 Indonesia 51 13 24 14 162 Iran, Islamic Rep. 20 1 12 7 75 Iraq 13 1 12 0 46 Ireland 8 1 1 6 17 Israel 33 2 12 19 111 Italy 15 2 1 12 54 Jamaica 72 4 48 20 181 Japan 14 2 2 10 49 Jordan 25 1 12 12 89 Kazakhstan 7 1 1 5 11 Kenya 41 5 14 22 138 Kiribati 7 5 2 0 11 Korea, Rep. 12 1 4 7 44 Kosovo 33 5 12 16 111 Kuwait 15 3 12 0 54 Kyrgyz Republic 52 5 12 35 163 Lao PDR 34 4 12 18 120 Latvia 7 1 1 5 11 Table 2: Tax payments Table 2: Tax payments Number of payments Rank Total tax Pro�t tax Labour tax Other taxes Tax payments Economy payments payments payments payments rank Lebanon 19 1 12 6 68 Lesotho 21 5 0 16 78 Liberia 33 5 12 16 111 Lithuania 11 1 2 8 40 Luxembourg 23 5 12 6 84 Macedonia, FYR 28 12 0 16 95 Madagascar 23 1 8 14 84 Malawi 19 2 1 16 68 Malaysia 13 2 2 9 46 Maldives 3 0 0 3 1 Mali 59 4 36 19 173 Marshall Islands 21 0 16 5 78 Mauritania 37 1 13 23 129 Mauritius 7 1 1 5 11 Mexico 6 1 2 3 8 Micronesia, Fed. Sts. 21 0 4 17 78 Moldova 48 1 28 19 158 Mongolia 41 12 12 17 138 Montenegro 42 1 24 17 143 Morocco 17 1 12 4 59 Mozambique 37 7 12 18 129 Namibia 37 3 12 22 129 Nepal 34 4 12 18 120 Netherlands 9 1 1 7 29 New Zealand 8 1 2 5 17 Nicaragua 42 1 24 17 143 Niger 41 3 14 24 138 Nigeria 35 3 14 18 123 Norway 4 1 1 2 4 Oman 14 1 12 1 49 Pakistan 47 5 25 17 155 Palau 19 4 12 3 68 Panama 53 5 16 32 164 Papua New Guinea 33 1 13 19 111 Paraguay 35 5 12 18 123 Peru 9 1 2 6 29 Philippines 47 1 36 10 155 Poland 29 12 1 16 96 Portugal 8 1 1 6 17 Puerto Rico 16 5 6 5 58 Qatar 3 0 1 2 1 Romania 113 4 84 25 182 Russian Federation 9 1 2 6 29 Rwanda 18 5 4 9 63 Samoa 37 5 24 8 129 São Tomé and Principe 42 2 12 28 143 Table 2: Tax payments Table 2: Tax payments Number of payments Rank Total tax Pro�t tax Labour tax Other taxes Tax payments Economy payments payments payments payments rank Saudi Arabia 14 1 12 1 49 Senegal 59 3 36 20 173 Serbia 66 12 12 42 177 Seychelles 21 12 6 3 78 Sierra Leone 29 1 12 16 96 Singapore 5 1 1 3 7 Slovak Republic 31 1 12 18 103 Slovenia 22 1 12 9 83 Solomon Islands 33 5 12 16 111 South Africa 9 2 3 4 29 Spain 8 1 1 6 17 Sri Lanka 71 5 24 42 180 St. Kitts and Nevis 36 4 12 20 127 St. Lucia 32 1 12 19 107 St. Vincent and the Grenadines 36 4 12 20 127 Sudan 42 2 12 28 143 Suriname 17 4 0 13 59 Swaziland 33 2 13 18 111 Sweden 4 1 1 2 4 Switzerland 19 2 7 10 68 Syrian Arab Republic 19 2 12 5 68 Taiwan, China 15 2 3 10 54 Tajikistan 69 11 12 46 178 Tanzania 48 5 24 19 158 Thailand 23 2 13 8 84 Timor-Leste 6 5 0 1 8 Togo 53 5 24 24 164 Tonga 20 1 0 19 75 Trinidad and Tobago 39 4 24 11 135 Tunisia 8 1 4 3 17 Turkey 15 1 1 13 54 Uganda 32 3 12 17 107 Ukraine 135 5 108 22 183 United Arab Emirates 14 0 12 2 49 United Kingdom 8 1 1 6 17 United States 11 2 4 5 40 Uruguay 53 1 24 28 164 Uzbekistan 41 8 12 21 138 Vanuatu 31 0 12 19 103 Venezuela, R.B. 70 14 28 28 179 Vietnam 32 6 12 14 107 West Bank and Gaza 27 14 0 13 92 Yemen, Rep. 44 1 24 19 148 Zambia 37 5 13 19 129 Zimbabwe 49 5 14 30 160 Table 3: Time to comply Table 3: Time to comply Number of hours Rank Total Corporate Labour Consumption Time Economy tax time income tax time tax time tax time rank Afghanistan 275 77 120 78 121 Albania 371 125 96 150 148 Algeria 451 152 110 189 162 Angola 282 75 125 82 126 Antigua and Barbuda 207 23 136 48 80 Argentina 415 105 70 240 157 Armenia 500 132 205 163 166 Australia 109 37 18 54 23 Austria 170 49 54 67 57 Azerbaijan 225 64 101 60 96 Bahamas, The 58 10 48 0 5 Bahrain 36 0 36 0 3 Bangladesh 302 140 0 162 131 Belarus 654 398 100 156 172 Belgium 156 20 40 96 50 Belize 147 27 60 60 45 Benin 270 30 120 120 113 Bhutan 274 250 24 0 119 Bolivia 1080 120 480 480 182 Bosnia and Herzegovina 422 68 96 258 159 Botswana 152 40 40 72 48 Brazil 2600 736 490 1374 183 Brunei Darussalam 96 66 30 0 20 Bulgaria 500 36 269 195 166 Burkina Faso 270 30 120 120 113 Burundi 274 80 48 146 119 Cambodia 173 23 84 66 60 Cameroon 654 180 174 300 172 Canada 131 45 36 50 37 Cape Verde 186 35 85 66 65 Central African Republic 504 24 240 240 168 Chad 732 300 216 216 178 Chile 316 42 137 137 134 China 398 74 192 132 155 Colombia 193 40 87 66 70 Comoros 100 4 48 48 21 Congo, Democratic Republic of 336 116 124 96 140 Congo, Republic of 606 275 150 181 171 Costa Rica 246 18 100 128 105 Côte d'Ivoire 270 30 120 120 113 Croatia 196 60 96 40 73 Cyprus 149 29 80 40 47 Czech Republic 557 135 262 160 169 Denmark 135 25 70 40 41 Djibouti 82 30 36 16 14 Dominica 120 15 48 57 29 Table 3: Time to comply Table 3: Time to comply Number of hours Rank Total Corporate Labour Consumption Time Economy tax time income tax time tax time tax time rank Dominican Republic 324 82 80 162 136 Ecuador 654 108 306 240 172 Egypt, Arab Rep. 433 69 189 175 161 El Salvador 320 128 96 96 135 Equatorial Guinea 492 145 160 187 165 Eritrea 216 24 96 96 86 Estonia 85 20 34 31 16 Ethiopia 198 150 24 24 74 Fiji 163 42 61 60 54 Finland 93 21 48 24 19 France 132 26 80 26 38 Gabon 488 137 131 220 164 Gambia, The 376 40 96 240 151 Georgia 387 140 67 180 152 Germany 221 30 148 43 88 Ghana 224 40 88 96 91 Greece 224 88 48 88 91 Grenada 140 8 96 36 42 Guatemala 344 44 144 156 143 Guinea 416 32 192 192 158 Guinea-Bissau 208 160 24 24 82 Guyana 263 48 48 167 110 Haiti 184 40 72 72 64 Honduras 224 35 93 96 91 Hong Kong SAR, China 80 50 30 0 12 Hungary 277 35 146 96 124 Iceland 140 40 60 40 42 India 254 45 96 113 107 Indonesia 266 88 97 81 112 Iran, Islamic Rep. 344 32 240 72 143 Iraq 312 24 288 0 133 Ireland 76 10 36 30 9 Israel 235 110 60 65 101 Italy 285 39 214 32 127 Jamaica 414 30 336 48 156 Japan 330 155 140 35 139 Jordan 116 5 60 51 26 Kazakhstan 188 75 70 43 68 Kenya 393 60 57 276 154 Kiribati 120 48 72 0 29 Korea, Rep. 225 100 80 45 96 Kosovo 164 32 42 90 55 Kuwait 118 48 70 0 27 Kyrgyz Republic 210 60 71 79 83 Lao PDR 362 138 42 182 147 Latvia 290 31 165 94 128 Table 3: Time to comply Table 3: Time to comply Number of hours Rank Total Corporate Labour Consumption Time Economy tax time income tax time tax time tax time rank Lebanon 180 40 100 40 62 Lesotho 324 70 104 150 136 Liberia 158 57 59 42 52 Lithuania 175 32 85 58 61 Luxembourg 59 21 14 24 6 Macedonia, FYR 119 19 56 44 28 Madagascar 201 9 72 120 77 Malawi 157 67 60 30 51 Malaysia 133 26 77 30 40 Maldives 0 0 0 0 1 Mali 270 30 120 120 113 Marshall Islands 128 0 96 32 34 Mauritania 696 120 96 480 177 Mauritius 161 13 82 66 53 Mexico 347 157 69 121 145 Micronesia, Fed. Sts. 128 0 96 32 34 Moldova 228 80 88 60 98 Mongolia 192 57 63 72 69 Montenegro 372 43 136 193 149 Morocco 238 70 48 120 102 Mozambique 230 50 60 120 99 Namibia 375 41 46 288 150 Nepal 326 120 84 122 138 Netherlands 127 25 64 38 33 New Zealand 172 25 67 80 58 Nicaragua 207 67 76 64 80 Niger 270 30 120 120 113 Nigeria 938 398 378 162 180 Norway 87 24 15 48 17 Oman 62 50 12 0 7 Pakistan 560 40 40 480 170 Palau 128 32 96 0 34 Panama 482 50 180 252 163 Papua New Guinea 194 153 8 33 71 Paraguay 387 35 132 220 152 Peru 309 39 160 110 132 Philippines 195 37 38 120 72 Poland 296 62 124 110 130 Portugal 275 63 116 96 121 Puerto Rico 218 80 60 78 87 Qatar 36 0 36 0 3 Romania 222 42 120 60 89 Russian Federation 290 130 96 64 128 Rwanda 148 22 48 78 46 Samoa 224 48 96 80 91 São Tomé and Principe 424 40 192 192 160 Table 3: Time to comply Table 3: Time to comply Number of hours Rank Total Corporate Labour Consumption Time Economy tax time income tax time tax time tax time rank Saudi Arabia 79 32 47 0 11 Senegal 666 120 96 450 176 Serbia 279 48 126 105 125 Seychelles 76 40 36 0 9 Sierra Leone 357 15 168 174 146 Singapore 84 34 10 40 15 Slovak Republic 231 42 86 103 100 Slovenia 260 90 96 74 109 Solomon Islands 80 8 30 42 12 South Africa 200 100 50 50 76 Spain 187 33 90 64 66 Sri Lanka 256 16 96 144 108 St. Kitts and Nevis 203 27 128 48 78 St. Lucia 92 11 51 30 18 St. Vincent and the Grenadines 111 14 52 45 25 Sudan 180 70 70 40 62 Suriname 199 48 24 127 75 Swaziland 104 8 48 48 22 Sweden 122 50 36 36 32 Switzerland 63 15 40 8 8 Syrian Arab Republic 336 300 36 0 140 Taiwan, China 245 185 27 33 104 Tajikistan 224 80 48 96 91 Tanzania 172 60 52 60 58 Thailand 264 160 48 56 111 Timor-Leste 276 132 144 0 123 Togo 270 30 120 120 113 Tonga 164 8 12 144 55 Trinidad and Tobago 210 45 75 90 83 Tunisia 144 64 30 50 44 Turkey 223 46 80 97 90 Uganda 213 45 66 102 85 Ukraine 657 112 364 181 175 United Arab Emirates 12 0 12 0 2 United Kingdom 110 35 45 30 24 United States 187 99 55 33 66 Uruguay 336 100 128 108 140 Uzbekistan 205 66 69 70 79 Vanuatu 120 0 24 96 29 Venezuela, R.B. 864 120 360 384 179 Vietnam 941 233 372 336 181 West Bank and Gaza 154 10 96 48 49 Yemen, Rep. 248 56 72 120 106 Zambia 132 48 24 60 38 Zimbabwe 242 78 96 68 103 Table 4: Total Tax Rate Table 4: Total Tax Rate Total Tax Rate Rank Pro�t tax Labour tax Other taxes Total Tax Rate Economy Total Tax Rate Total Tax Rate Total Tax Rate Total Tax Rate rank50 Afghanistan 36.4% 0.0% 0.0% 36.4% 79 Albania 38.5% 8.7% 25.0% 4.8% 88 Algeria 72.0% 6.6% 29.7% 35.7% 172 Angola 53.2% 24.6% 9.0% 19.6% 148 Antigua and Barbuda 41.5% 26.0% 9.5% 6.0% 103 Argentina 108.2% 2.8% 29.4% 76.0% 180 Armenia 40.9% 16.8% 23.0% 1.1% 100 Australia 47.7% 26.0% 20.4% 1.3% 133 Austria 53.1% 15.0% 34.8% 3.3% 147 Azerbaijan 40.0% 12.9% 24.8% 2.3% 94 Bahamas, The 47.7% 0.0% 6.1% 41.6% 134 Bahrain 15.0% 0.0% 14.6% 0.4% 10 Bangladesh 35.0% 25.7% 0.0% 9.3% 70 Belarus 62.8% 20.2% 39.0% 3.6% 157 Belgium 57.3% 5.2% 50.4% 1.7% 153 Belize 33.2% 0.0% 7.0% 26.0% 59 Benin 66.0% 14.8% 27.3% 23.9% 166 Bhutan 40.8% 36.3% 0.0% 4.5% 98 Bolivia 80.0% 0.0% 15.5% 64.5% 175 Bosnia and Herzegovina 25.0% 7.1% 12.6% 5.3% 28 Botswana 19.4% 15.9% 0.0% 3.5% 18 Brazil 67.1% 22.4% 40.9% 3.8% 168 Brunei Darussalam 16.8% 8.3% 8.5% 0.0% 16 Bulgaria 28.1% 4.9% 19.2% 4.0% 36 Burkina Faso 43.6% 14.8% 22.6% 6.2% 110 Burundi 46.2% 37.4% 7.8% 1.0% 127 Cambodia 22.5% 18.9% 0.1% 3.5% 22 Cameroon 49.1% 29.9% 18.3% 0.9% 136 Canada 28.8% 9.4% 12.6% 6.8% 39 Cape Verde 37.8% 18.6% 18.5% 0.7% 85 Central African Republic 54.6% 0.0% 19.8% 34.8% 150 Chad 65.4% 31.3% 28.4% 5.7% 163 Chile 25.0% 18.0% 3.8% 3.2% 27 China 63.5% 6.0% 49.6% 7.9% 161 Colombia 74.8% 18.9% 28.8% 27.1% 174 Comoros 217.9% 31.4% 0.0% 186.5% 181 Congo, Democratic Republic of 339.7% 58.9% 7.9% 272.9% 183 Congo, Republic of 65.9% 18.1% 32.5% 15.3% 165 Costa Rica 55.0% 18.9% 29.5% 6.6% 151 Côte d'Ivoire 44.3% 8.8% 20.1% 15.4% 118 Croatia 32.3% 11.4% 19.4% 1.5% 54 Cyprus 23.1% 9.1% 11.8% 2.2% 24 Czech Republic 49.1% 7.5% 38.4% 3.2% 137 Denmark 27.5% 20.2% 3.6% 3.7% 33 Djibouti 38.7% 17.7% 17.7% 3.3% 91 Dominica 37.5% 25.9% 7.9% 3.7% 83 50 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 4: Total Tax Rate Table 4: Total Tax Rate Total Tax Rate Rank Pro�t tax Labour tax Other taxes Total Tax Rate Economy Total Tax Rate Total Tax Rate Total Tax Rate Total Tax Rate rank50 Dominican Republic 41.7% 21.3% 18.6% 1.8% 105 Ecuador 35.3% 18.4% 14.2% 2.7% 73 Egypt, Arab Rep. 43.6% 13.0% 27.0% 3.6% 111 El Salvador 35.0% 16.5% 17.2% 1.3% 71 Equatorial Guinea 46.0% 0.0% 25.4% 20.6% 125 Eritrea 84.5% 8.8% 0.0% 75.7% 177 Estonia 58.6% 8.0% 39.4% 11.2% 154 Ethiopia 31.1% 26.8% 0.0% 4.3% 45 Fiji 38.3% 27.9% 10.2% 0.2% 87 Finland 39.0% 13.7% 24.1% 1.2% 92 France 65.7% 8.2% 51.7% 5.8% 164 Gabon 43.5% 18.4% 22.8% 2.3% 109 Gambia, The 283.5% 6.1% 12.8% 264.6% 182 Georgia 16.5% 14.3% 0.0% 2.2% 14 Germany 46.7% 19.0% 21.8% 5.9% 130 Ghana 33.6% 18.4% 14.7% 0.5% 61 Greece 46.4% 13.4% 31.7% 1.3% 128 Grenada 45.3% 27.6% 5.6% 12.1% 121 Guatemala 40.9% 25.9% 14.3% 0.7% 101 Guinea 54.3% 20.9% 22.8% 10.6% 149 Guinea-Bissau 45.9% 14.9% 24.8% 6.2% 124 Guyana 36.1% 23.8% 8.8% 3.5% 77 Haiti 40.8% 24.1% 12.4% 4.3% 99 Honduras 44.0% 24.7% 10.7% 8.6% 116 Hong Kong SAR, China 23.0% 17.6% 5.3% 0.1% 23 Hungary 52.4% 14.8% 34.1% 3.5% 143 Iceland 31.8% 9.4% 18.8% 3.6% 51 India 61.8% 24.6% 18.2% 19.0% 156 Indonesia 34.5% 23.6% 10.6% 0.1% 67 Iran, Islamic Rep. 44.1% 17.8% 25.9% 0.4% 117 Iraq 28.4% 14.9% 13.5% 0.0% 38 Ireland 26.3% 11.9% 11.6% 2.8% 31 Israel 31.2% 22.8% 5.3% 3.1% 46 Italy 68.5% 22.8% 43.4% 2.3% 170 Jamaica 45.6% 25.6% 13.0% 7.0% 123 Japan 49.1% 27.0% 16.5% 5.6% 138 Jordan 27.7% 13.0% 12.4% 2.3% 34 Kazakhstan 28.6% 15.9% 11.2% 1.5% 41 Kenya 49.6% 33.1% 6.8% 9.7% 140 Kiribati 31.8% 23.3% 8.5% 0.0% 50 Korea, Rep. 29.7% 15.2% 13.0% 1.5% 42 Kosovo 15.4% 9.2% 5.6% 0.6% 11 Kuwait 15.5% 4.8% 10.7% 0.0% 12 Kyrgyz Republic 69.0% 6.2% 19.5% 43.3% 171 Lao PDR 33.3% 24.8% 5.6% 2.9% 60 Latvia 37.9% 6.0% 27.2% 4.7% 86 50 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 4: Total Tax Rate Table 4: Total Tax Rate Total Tax Rate Rank Pro�t tax Labour tax Other taxes Total Tax Rate Economy Total Tax Rate Total Tax Rate Total Tax Rate Total Tax Rate rank50 Lebanon 30.2% 6.1% 24.1% 0.0% 44 Lesotho 16.0% 13.0% 0.0% 3.0% 13 Liberia 43.7% 0.0% 5.4% 38.3% 113 Lithuania 43.9% 5.7% 35.1% 3.1% 115 Luxembourg 20.8% 4.1% 15.1% 1.6% 19 Macedonia, FYR 9.7% 6.3% 0.0% 3.4% 4 Madagascar 36.6% 14.7% 20.3% 1.6% 80 Malawi 28.2% 23.6% 1.1% 3.5% 37 Malaysia 34.0% 17.0% 15.6% 1.4% 62 Maldives 9.3% 0.0% 0.0% 9.3% 3 Mali 51.8% 10.8% 34.3% 6.7% 142 Marshall Islands 64.9% 0.0% 11.8% 53.1% 162 Mauritania 68.3% 0.0% 17.6% 50.7% 169 Mauritius 25.0% 11.6% 6.1% 7.3% 26 Mexico 52.7% 24.5% 26.8% 1.4% 144 Micronesia, Fed. Sts. 58.7% 0.0% 6.8% 51.9% 155 Moldova 31.3% 0.0% 30.6% 0.7% 47 Mongolia 24.6% 10.2% 12.4% 2.0% 25 Montenegro 22.3% 7.1% 12.8% 2.4% 21 Morocco 49.6% 25.2% 22.7% 1.7% 141 Mozambique 34.3% 27.7% 4.5% 2.1% 64 Namibia 9.8% 4.0% 1.0% 4.8% 5 Nepal 31.5% 17.2% 11.3% 3.0% 49 Netherlands 40.5% 20.9% 18.1% 1.5% 96 New Zealand 34.4% 29.9% 2.9% 1.6% 65 Nicaragua 66.8% 24.5% 20.3% 22.0% 167 Niger 43.8% 17.3% 20.1% 6.4% 114 Nigeria 32.7% 22.3% 9.7% 0.7% 56 Norway 41.6% 24.4% 15.9% 1.3% 104 Oman 22.0% 10.1% 11.8% 0.1% 20 Pakistan 35.3% 17.9% 15.1% 2.3% 72 Palau 73.0% 66.0% 6.5% 0.5% 173 Panama 45.2% 13.7% 21.7% 9.8% 120 Papua New Guinea 42.3% 22.0% 11.7% 8.6% 107 Paraguay 35.0% 9.6% 18.6% 6.8% 69 Peru 40.7% 26.6% 11.0% 3.1% 97 Philippines 46.5% 21.0% 11.3% 14.2% 129 Poland 43.6% 17.4% 23.6% 2.6% 112 Portugal 43.3% 15.0% 26.8% 1.5% 108 Puerto Rico 63.1% 28.3% 14.4% 20.4% 159 Qatar 11.3% 0.0% 11.3% 0.0% 6 Romania 44.4% 10.4% 31.8% 2.2% 119 Russian Federation 46.9% 9.0% 32.1% 5.8% 132 Rwanda 31.3% 21.2% 5.7% 4.4% 48 Samoa 18.9% 11.9% 7.0% 0.0% 17 São Tomé and Principe 32.5% 22.1% 6.8% 3.6% 55 50 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. This year the rankings differ from those used by the World Bank Group in the Doing Business 2012 report which applies a threshold to the ranking for the Total Tax Rate. Table 4: Total Tax Rate Table 4: Total Tax Rate Total Tax Rate Rank Pro�t tax Labour tax Other taxes Total Tax Rate Economy Total Tax Rate Total Tax Rate Total Tax Rate Total Tax Rate rank50 Saudi Arabia 14.5% 2.1% 12.4% 0.0% 9 Senegal 46.0% 14.8% 24.1% 7.1% 126 Serbia 34.0% 11.6% 20.2% 2.2% 63 Seychelles 32.2% 19.8% 11.5% 0.7% 53 Sierra Leone 32.1% 17.6% 11.3% 3.2% 52 Singapore 27.1% 6.5% 15.9% 4.7% 32 Slovak Republic 48.8% 7.2% 39.6% 2.0% 135 Slovenia 34.7% 14.1% 18.2% 2.4% 68 Solomon Islands 26.2% 14.6% 8.5% 3.1% 30 South Africa 33.1% 24.4% 4.1% 4.6% 58 Spain 38.7% 1.2% 36.8% 0.7% 90 Sri Lanka 105.2% 26.7% 16.9% 61.6% 179 St. Kitts and Nevis 52.7% 32.7% 11.3% 8.7% 145 St. Lucia 34.4% 25.9% 5.6% 2.9% 66 St. Vincent and the Grenadines 38.7% 30.2% 5.1% 3.4% 89 Sudan 36.1% 13.8% 19.2% 3.1% 78 Suriname 27.9% 27.9% 0.0% 0.0% 35 Swaziland 36.8% 28.1% 4.0% 4.7% 81 Sweden 52.8% 15.7% 35.5% 1.6% 146 Switzerland 30.1% 8.9% 17.6% 3.6% 43 Syrian Arab Republic 39.7% 19.9% 19.3% 0.5% 93 Taiwan, China 35.6% 13.7% 18.4% 3.5% 75 Tajikistan 84.5% 0.0% 28.5% 56.0% 176 Tanzania 45.5% 20.2% 18.0% 7.3% 122 Thailand 37.5% 28.8% 5.7% 3.0% 84 Timor-Leste 0.2% 0.0% 0.0% 0.2% 1 Togo 49.5% 9.3% 26.5% 13.7% 139 Tonga 25.7% 24.3% 0.0% 1.4% 29 Trinidad and Tobago 29.1% 21.6% 5.8% 1.7% 40 Tunisia 62.9% 15.2% 25.2% 22.5% 158 Turkey 41.1% 17.9% 18.8% 4.4% 102 Uganda 35.7% 23.3% 11.3% 1.1% 76 Ukraine 57.1% 12.2% 43.3% 1.6% 152 United Arab Emirates 14.1% 0.0% 14.1% 0.0% 7 United Kingdom 37.3% 23.1% 11.0% 3.2% 82 United States 46.7% 27.6% 10.0% 9.1% 131 Uruguay 42.0% 23.5% 15.6% 2.9% 106 Uzbekistan 97.5% 1.1% 28.2% 68.2% 178 Vanuatu 8.4% 0.0% 4.5% 3.9% 2 Venezuela, R.B. 63.5% 6.9% 18.0% 38.6% 160 Vietnam 40.1% 17.2% 22.6% 0.3% 95 West Bank and Gaza 16.8% 16.2% 0.0% 0.6% 15 Yemen, Rep. 32.9% 20.1% 11.3% 1.5% 57 Zambia 14.5% 1.5% 10.4% 2.6% 8 Zimbabwe 35.6% 20.4% 5.1% 10.1% 74 50 The overall ranking is a simple average of the percentile rankings of each of the sub-indicators. 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