paying taxes 2016 (1)

8/19/2019 Paying Taxes 2016 (1)

1/153

Paying

Taxes2016

Ten years of in-depth analysis on taxsystems in 189 economies. A look atrecent developments and historical trends.

10th edition

www.pwc.com/payingtaxes

8/19/2019 Paying Taxes 2016 (1)

2/153

Contacts

PwC 1

Stef van WeeghelLeader, Global Tax Policy and

Administration Network PwC Netherlands+31 88 792 [email protected]

Andrew Packman

Tax Transparency andTotal Tax Contribution leaderPwC UK +44 1895 522 [email protected]

Neville Howlett

Director External Relations, TaxPwC UK +44 20 7212 [email protected]

World Bank Group

Augusto Lopez-ClarosDirectorGlobal Indicators Group+1 202 458 [email protected]

Rita Ramalho

Manager, Doing Business Unit+1 202 458 [email protected]

Joanna Nasr

Private Sector Development Specialist+ 1 202 458 0893

[email protected]

1

8/19/2019 Paying Taxes 2016 (1)

3/153

3Foreword

Contents

Foreword

Key ndings from the Paying Taxes 2016 data ..............................................................................................................1

What does this publication cover? ...............................................................................................................................7

Chapter 1: World Bank Group commentary ....................................................................................................11 Recent developments in the Paying Taxes sub-indicators .......................................................................................11

Chapter 2: PwC commentary .............................................................................................................................23 The global results ..................................................................................................................................................25 Comparing the regions .......................................................................................................................................... 29 How has the Paying Taxes picture changed over the ten editions? .........................................................................33 Regional analysis of the sub-indicators .................................................................................................................45 In-depth country articles ......................................................................................................................................61

Chapter 3: Tax policy and administration.......................................................................................................81 Uncovering the impact of hidden taxes on employment ........................................................................................83 Combatting the shadow economy: a taxpayer-centric approach ............................................................................89 The relevance and sustainability of co-operative compliance models for tax in African countries .........................95

Appendi x 1

Methodology and example calculations for each Paying Taxes sub-indicators ............................................................99

Appendi x 2

Economy sub-indicator results by region .................................................................................................................. 111

Appendi x 3

The data tables ........................................................................................................................................................129

8/19/2019 Paying Taxes 2016 (1)

4/153

Foreword

Welcome to this tenth edition of the Paying Taxes study which draws on up to eleven years’ worth ofdata from 189 economies.

Since the rst edition of Paying Taxes, andespecially following the global nancial crisis,the media, the public and many policymakershave become increasingly interested in howinternational tax systems operate. Most recentlythe focus has been the work initiated by the G20and carried out by the Organisation of EconomicCooperation and Development (OECD) on BaseErosion and Prot Shifting (BEPS). The BEPSagenda however does not consider what somecommentators would consider to be equallyimportant issues for developing economies,including how to enhance the administrative

capacities of tax authorities, reduce the informaleconomy and corruption while promotinggrowth and investment. The Paying Taxes study,

with its emphasis on ef cient tax complianceand straightforward tax regimes provides

valuable insight into many of these developingcountry issues. It can be an invaluable source ofinformation to decision-makers, providing anindependent assessment of whether interventionsare resulting in a simplied compliance processfor a standardised domestic model business.Governments also often nd it useful to beable to learn from the experience of economiesin their peer group and to consider whether ameasure adopted elsewhere might be relevant fortheir economy.

Andrew Packman

rreand Total Taxontrton leader

PwC UK

AugustoLopez-Claros

retor loalndator ro

The World Bankro

8/19/2019 Paying Taxes 2016 (1)

5/153

5Foreword

One area of tax compliance that Paying Taxes hasnot considered to date is post ling-compliance

which covers the processes that take place once atax return has been led, including the paying oftax refunds, tax audits and tax appeals. This year

we conducted a pilot project into this area andsome initial qualitative ndings are included inthis publication. Further detail will be available inearly 2016.

One of the strengths of Paying Taxes is that itprovides data on a like-for-like basis, year afteryear with the fundamentals of the study stayingunchanged since the start. It looks at a mediumsized case study company that is owned andoperates entirely domestically. For each economyin the study, three sub-indicators are assessed;

the costs of all taxes borne by the company (theTotal Tax Rate), the time required to comply

with tax obligations and the number of taxpayments made. Using these components, thestudy continues to provide an objective basis forgovernments to benchmark their tax systems.

Over the period of the study there has been asteady decrease in our three sub-indicators,as across the world the tax cost has graduallyreduced and electronic systems have madetax compliance less burdensome. The rates ofdecrease have however slowed in recent yearsand this year in particular we have seen a mixedpicture for the Total Tax Rate. While acrossthe globe the average Total Tax Rate has fallen

very slightly, it actually rose in more economiesthan it fell. We have also seen diametricallyopposing instances of tax reform with, forexample, one economy introducing a tax whichanother economy has abolished or one economyincreasing a tax rate which another has reduced.

This suggests that economies are taking differentapproaches to tax policy in the face of similareconomic pressures.

The compliance sub-indicators also continuedto fall this year, though there remain signicantdifferences between the regions. Indeed, overthe ten editions of Paying Taxes, some of the leastreformed economies and regions are those wheretax compliance is the most burdensome, whilein the last year the high-income OECD group ofeconomies had the most reforms as counted by

Paying Taxes. This suggests that there are manyeconomies that stil l have considerable scope toreform the operation of their tax systems, andthat challenges such as the availability of ITinfrastructure may need to be addressed before

the tax system can be signicantly improved.

As well as our analysis of the Paying Taxes sub-indicators and reforms, we also look in thispublication at the place of employment taxesin a balanced tax system, the role tax can playin reducing the informal economy and how toimprove relationships between taxpayers and taxauthorities. We also have some in-depth viewsfrom selected economies.

We hope that you enjoy reading this year’spublication and we would encourage you to getin touch if you have any questions, comments orsuggestions for future areas of research.

The Paying Taxes study provides anunrivalled global database which supportsan ongoing research programme.

Andrew Packman Augusto Lopez-Claros

8/19/2019 Paying Taxes 2016 (1)

6/153

1 Paying Taxes 2016

ey ndings rom the Paying Taxes 2016 data

Total Tax Rate

40.8%Time to comply

261 hoursNumber of payments

25.6

2014

2004

150

50

0

Max number of

payments (70)

Min number of

payments (3)

Max number of

payments (147)

Min number of

payments (3)

2014

144

67

Total Tax Rate

-0.1%Time to comply

-2 hoursNumber of payments

-0.6

46 41

Total Tax Rate

On average it takes our case study company 261 hours tocomply with its taxes, it makes 25.6 payments and has anaverage Total Tax Rate of 40.8%.

The range for the payments sub-indicator has narrowed overthe 10 editions of Paying Taxes, from 144 payments in 2004to 67 in 2014.

All three sub-indicators (Total Tax Rate, time to comply andnumber of payments) have continued to fall in 2014.

In 2014, the Total Tax Rateincreased in 46 economies

while decreasing in 41economies.

8/19/2019 Paying Taxes 2016 (1)

7/153

2Ke ndn ro the Pan Taxe 1 data

2005 2014

46economies

84economies

2004 2014

300 hrs

0

60% 74%

2004 2010 2014

74% of economies now take less than 300 hours to comply with their tax obligations compared to 60% in 2004.

From 2004 – 2009 the most common reform was thereduction of prot taxes. From 2010 – 2014, the mostcommon reform was the introduction and improvementof electronic systems.

The low income economies have shown the least reform onthe compliance sub-indicators.

By 2014, 84 economies had fully implemented electronicling and payment of taxes.

Low income economies Other economies

2004 2014

8/19/2019 Paying Taxes 2016 (1)

8/153

3 Paying Taxes 2016

235payments

615hours

550%

341payments

20hours

421%

1 hours

The regional picture

orth AmericaLowest payments indicatorThe three countries in the region havefully implemented electronic ling andpayment systems, resulting in ef cientcompliance processes. Mexico abolished

a prot tax in 2014 reducing the region’stime to comply still further.

Central America the Cariean All three su-indicators have continued

to fallThe region experienced the greatest fallin the Total Tax Rate of all the regions for2014. It remains the region where prottaxes account for the greatest share of theTotal Tax Rate.

outh AmericaHighest Total Tax Rate

and time to comply While the Total Tax Rate and time tocomply sub-indicators have decreasedsince last year, the region still has thehighest Total Tax Rate and the highesttime to comply. It is also the region

where other’ taxes account for thelargest share of the Total Tax Rate.

82payments

38%

Explore our powerful interactive data modeller and compare tax regimes across 189 global economies at www.pwc.com/payingtaxesmodeller

8/19/2019 Paying Taxes 2016 (1)

9/153

4Key ndns rom the Payn Taxes 1 data

251payments

222hours

356%

10payments

242%

352%

115payments

1 3hours

406%

Asia Paci c

Apart from the iddle ast itis the region with the lowest

average Total Tax Rate All three sub-indicators fell slightlyin 2014. All are below the globalaverage and have been since thestudy began. While the averagetime to comply fell in the latestperiod, this is a mix of largereductions in some economies offsetby signicant increases in others.

FTA All three su-indicatorselow the gloal average

and still fallingTwenty economies in the regionmade reforms which affectedtheir Total Tax Rates, mostly bysmall amounts. Labour taxesaccount for a greater share ofthe Total Tax Rate than in any

other region.

A ricareatest reduction in Total Tax Rateover ten years ut has the highestpayments su-indicator

Although the region shows the greatestoverall drop in the Total Tax Rate since2004, it is still a very dif cult regionin which to pay tax. The Total TaxRate increased this year, with timeto comply and number of payments

decreasing.

iddle astStill the easiest region in which to

pay taxesDespite a small increase in the TotalTax Rate in 2014, the region is theeasiest in which to pay tax. It has thelowest Total Tax Rate and time tocomply, and all of the sub-indicatorshave been very stable since 2004.

Central Asia astern uropeost reformed region since Since the rst edition of Paying Taxes,the region has done the most to make taxcompliance easier. However in 2014, for the rsttime since the study began, the region’s TotalTax Rate increased.

212payments

24 hours

160hours

366payments

46%

313hours

8/19/2019 Paying Taxes 2016 (1)

10/153

Ten editions o Paying Taxes

5 Paying Taxes 2016

Paying Taxes 200

• Businesses in the 175economies covered by thestudy submit on average 35pages of tax returns a year,equivalent to 100,000 treesa year, even after accountingfor the few countries wherebusiness taxes can be led

electronically.2 • The most popular reform

is reducing corporateincome taxes.

Paying Taxes 2008

• Data for Brunei Darussalam,Liberia, Luxembourg,Montenegro were published inthe study for the rst time.

• Corporate income taxes accountfor 37% of the Total Tax Rate,26% of the number of hours spenton tax compliance and 12% of thenumber of tax payments made.

Paying Taxes 2010

• Data for Cyprus andKosovo were published inthe study for the rst time.

• World average Total TaxRate drops below 50% forthe rst time.

• World average for time tocomply drops below 300hours for the rst time.

• The effect of the globalnancial crisis on taxpolicy begins to be feltas governments seek toprotect revenues.

Paying Taxes 200

• Data for The Bahamas, Bahrain andQatar were published in the study forthe rst time

• Central Asia & Eastern Europe hadthe most reforms.

• Since the start of the study, 50%of economies have implementedreforms making it easier to pay taxes.

2 A grown tree produces on ave rage, 80,500 sheets of paper. There are about 250 mi llion formal bus inesses in the world.

Paying Taxes 2008The global picture


THEWORLDBANK


Paying TaxesThe global picture

8/19/2019 Paying Taxes 2016 (1)

11/153

The previous editions of Paying Taxes are available to download at our website: www.pwc.com/payingtaxes

6Key ndings from the Paying Taxes 201 data

Paying Taxes 2012

• The rst year that the

introduction of electronicsystems became the mostpopular reform.

• Global average numberof payments sub-indicator drops below30 for the rst time

• On average around the world the case studycompany pays 9.3 taxesand in 31 economies itpays more than 12 taxes.

Paying Taxes 2013• Data for Barbados and Malta

were published in the studyfor the rst time.

• Time to comply for Central Asia & Eastern Europe dipsbelow the world average forthe rst time.

• Econometric analysis of Paying Taxes data shows thateconomies with a higher taxcompliance burden have lesseconomic growth.

Paying Taxes 2014

• Data for Libya, Myanmar, San Marinoand South Sudan were published in

the study for the rst time.• The study now includes data for189 economies.

• New analysis shows for the rst timethat labour taxes account for a highershare of the Total Tax Rate than prottaxes.

Paying Taxes 2016

• Central Asia & Eastern Europeis the most reformed regionsince the study began.

• A pilot project is launched tolook at post-ling compliance.

Paying Taxes 2015

• South America overtakes Africafor the rst time as the region

with the highest Total Tax Rate.• The case study company is

brought up to date by updatingthe Gross National Income percapita used to determine thestudy parameters.

• For the 11 biggest economies,data is now collected for anadditional city in each economy.

Paying Taxes 2011

• The economic and nancial

crisis has caused scal

constraints for many economies,

yet many are stil l choosing to

lower tax rates on businesses.

• The highest ever Total Tax Rateof 339.7% is rst recorded.



singdatacollected

from 183 economies,

Paying Taxes enables acomparisonoftaxsystems

roundtheworldasthey

impact business.


Afair, sustainable

taxsystem – how can

governments createan

environment that fostersbusiness investment and

economic growth?

Paying Taxes 2012 The global picture

PayingTaxes2013The global picture


PayingTaxes2014

Paying Taxes2014: Theglobal picture Acomparison oftaxsystemsin 189economies worldwide


Paying Taxes2015

Paying Taxes 2015: The global picture.

Thechangingface oftaxcompliance in189economies worldwide.


PayingTaxes2016

10 yearsofin depthanalysison taxsystems in 189 economies. Alo o katrecent developmentsandhistorical trends.

10th editionwww.pwc.com/payingtaxes

8/19/2019 Paying Taxes 2016 (1)

12/153

7 Paying Taxes 2016

W

What does this publicationcover?

8/19/2019 Paying Taxes 2016 (1)

13/153

8What does this publication cover?

at does this publication cover?

This is the tenth edition of Paying Taxes incorporating up to 11 years’ worth of data ontax systems in 189 economies around the world.The study’s databank provides a unique insightinto how governments around the world chooseto tax companies operating in their jurisdictionsand the mechanisms by which those taxes arelevied. While much of the global focus on tax inrecent years has been on corporate income taxes,it must not be forgotten that the majority of taxrevenues and the bulk of compliance time is spenton other taxes and Paying Taxes provides a broadoverview that incorporates these. The ongoinginterest in Paying Taxes is demonstrated by the

fact that over 18,000 copies of the last publicationhave been distributed, there were 50,000 visitsto dedicated websites, the results have beenreported extensively by media around the

world and meetings with senior of cials withingovernment have been convened to discuss thendings in numerous countries. A recent academicpublication on tax and complexity also features achapter on Paying Taxes.3

Paying Taxes is designed to measure the ‘easeof paying taxes’ and is part of the World BankGroup’s Doing Business project which itselfmeasures the ‘ease of doing business’ by lookingat 11 indicators, including the Paying Taxes indicator. The study provides data on the taxsystems of 189 economies around the world andfacilitates a like-for-like comparison, stimulatinga discussion between business, government,civil society and a range of other stakeholdersregarding tax policy and its economic impact.

The data covers the years from 2004 to 2014and so provides some useful insights on howtax systems have adjusted and developedthroughout a turbulent period for the globaleconomy. Increasingly we have seen governmentsrecognise that tax is an important dimension of aneconomy’s competitiveness with an ability to helpencourage domestic growth and to help attractinward investment. And it is not just the rate of tax

which is important here. The way in which the taxsystem collects and administers its taxes has animpact on businesses in terms of the time requiredand the costs associated with that time.

Paying Taxes remains a unique study, generatingan unparalleled dataset that assesses taxesfrom the perspective of a tax paying business,based upon a case study company. It reectsall taxes and contributions that a standardisedmedium-sized domestic company pays, includingcorporate income taxes, employment taxes andmandatory contributions, indirect taxes and a

variety of smaller payments such as municipaltaxes. The Paying Taxes data shows that in 181economies the case study company pays corporateincome tax, consumption taxes are levied in171 economies and a variety of labour taxes andmandatory contributions are borne by employersin 176 of the 189 economies assessed.

3 Tax implication, edited by C vans, Krever and P ellor, eries on nternational Taxation, Kluwer aw nternational 2015.

8/19/2019 Paying Taxes 2016 (1)

14/153

9 Paying Taxes 2016

The objectives of the study are to:

• compare domestic tax systems on a like-for-like basis;

• facilitate the benchmarking of tax systems within relevant economic and geographicalgroupings, which provides an opportunity tolearn from peer group economies;

• analyse data and identify good tax practicesand reforms;

• generate robust tax data on 189 economiesaround the world, including how they havechanged over time, which then can be usedto inform tax policy decisions.

Paying Taxes uses a case study company tomeasure the ease of paying taxes through thetaxes and contributions paid by a medium sizedcompany and the compliance burden imposedby the tax system. The case study scenariois based upon a standardised set of nancialstatements with all items in the nancialstatements calculated as a xed multiple of grossnational income per capita (GNIpc) for each

economy. There are also standard assumptionsabout transactions, employees, cross-bordertransactions and ownership. The case studycompany is not intended to be a representativecompany, but has been constructed to facilitatea comparison of the world’snancial systems ona like-for-like basis.

Data is gathered through a questionnaire whichis completed by at least two tax specialists(contributors) within each economy, includingPwC.4 The World Bank Group reviews andcompares the data from the different contributorsto reach a consensus view.

The contributors provide information whichallows the study to evaluate both the cost of thetaxes that are borne by the case study companyand the administrative burden of taxes borne andcollected using three sub-indicators:

• Total Tax Rate is the measure of tax cost,the total of all taxes borne as a percentageof commercial prot;5

• the time to comply with the three main taxes(corporate income taxes, labour taxes andmandatory contributions, and consumption

taxes); this captures the time required toprepare,le and pay each tax type;

• the number of payments, which measuresthe frequency with which the company hasto le and pay different types of taxes andcontributions, adjusted for the manner in

which those lings and payments are made.6

The sub-indicators evaluate the ‘ease of payingtaxes’ by calculating the distance to frontier(DTF) score. The distance to frontier scorebenchmarks the sub-indicators to a measureof regulatory best practice – showing the gapbetween each economy’s performance and thebest practice for each sub-indicator. Details ofhow the DTF score is calculated are provided in

Appendix 1. This is done in isolation, withoutconsidering the macro economy as a whole, butrather only the micro impact on a single business.

The sub-indicators only consider the taxcompliance process up to the point at whichtax returns are led and the tax paid. In alleconomies there is a post-ling compliance periodas returns are assessed and potentially challengedby tax authorities, any errors or mistakes

corrected and refunds or further payments made.In many economies the post-ling complianceobligations may be signicant and so this yeardata was collected from contributors on certainaspects of this process. This data has not beenincluded in the sub-indicator data, but someinitial ndings are discussed in Chapter 1 and

we expect to publish further data and analysis inearly 2016.

This year’s data for each economy, including thethree sub-indicators, distance to frontier score,and the rankings, are included in Appendix 2and Appendix 3 of this publication, includinga breakdown by region. Further details areavailable on the PwC and World Bank websites.7

4 For a list of all t he contributors see ww w.doingbusiness.org contributors doingbusiness5 Commercial prot is essentially net prot before all taxes borne. t differs from the conventional prot before tax, reported in nancial statements. ncomputing prot before tax, many of the ta xes borne by a company are deductible. Commercial prot is calculated as sales minus cost of goods sold, minusgross salaries, minus administrative expenses, minus other expenses, m inus provisions, plus capital gains from the property sale , minus interest expense,plus interest income and minus commercial depreciation. To compute the commercial depreciation, a straightline depreciation method is applied, with thefollowing rates 0% for the land, 5% for the building, 10% for the machinery, 33% for the computers, 20% for the ofce euipment, 20% for the truck and 10%for business development expenses. Commercial prot amounts to 59.4 times pc in each economy, by assumption of the case study rm.

6 Where full electronic ling and payment is used by the ma ority of mediumsie businesses in the economy and where there is no reuirement to le hardcopies of documentation following electronic submission, the number of payments is counted as one even if lings and payments are more freuent.

7 www.pwc.com payingtaxes and www.doingbusiness.org

8/19/2019 Paying Taxes 2016 (1)

15/153

10What does this publication cover?

The full methodology of the study for the casestudy company, the sub-indicators, and someexamples of how the sub-indicators are calculatedare included in Appendix 1 to this publication.Some important points to note however are that:

1. The sub-indicators are calculated by referenceto a particular calendar year. The effect ofany change that takes place part way throughthe year is pro-rated. The most recent data inthis study, Paying Taxes 2016, relates to thecalendar year ended 31 December 2014.

2. For 2004 to 2011, the GNIpc gures used toconstruct the case study nancial statements

were based on 2005 values. For 2012, 2013and 2014 the 2012 GNIpc values have beenused. This has been done to ensure that thecase study company reects the economicgrowth that has been experienced over theperiod of the study, but means that care needsto be taken in the interpretation of some ofthe trends.

3. The ranking order is based on the DTFmeasure which is used by the WorldBank Group to evaluate each economy’sperformance relative to the lowest and highest

value of each sub-indicator rather thanrelative to the other economies. This meansthat economies can now see how far theyhave progressed towards best practice, ratherthan simply looking at how they compare toother economies. The distribution used todetermine the distance to frontier score ofthe Total Tax Rate is non-linear. This meansthat movements in a Total Tax Rate that isalready close to the lowest Total Tax Rate willhave less of an impact on the DTF score. Asin previous years, the lowest Total Tax Ratefor the purposes of the ranking calculationis set at the 15th percentile of the overalldistribution for all years included in theanalysis up to and including Doing Business

2015, which is 26.1%. Economies with a TotalTax Rate below this value will therefore not becloser to the frontier than an economy with aTotal Tax Rate equal to this value.

4. If in the course of collecting and analysing thedata for 2014 it became apparent that data for

previous years was incorrect, the necessaryadjustments have been made and the sub-indicators recalculated for prior years. Anydata that refers to 2013 and earlier years istherefore stated after such corrections havebeen made and so may differ from the datapublished in previous editions of this studyincluding the global and regional averages.

Chapter 1 of this year’s publication is the WorldBank’s commentary on the ongoing need for taxreform, the types of reform seen this year andover the last ve years. The Chapter also includesan initial qualitative commentary on some of thendings from the post-ling compliance data that

was collected for the rst time this year.

Chapter 2 provides PwC’s analysis andcommentary with a focus on the results for thecurrent year and over the 10 editions of thepublication. We begin by looking at the globalresults for the year ending 31 December 2014.We then analyse the data points on the regionsand how they compare to each other beforelooking back at some of the important trendssince 2004. This is followed by a summary ofeach region’s average sub-indicator movementsfor this year with details of the changes in theTotal Tax Rate, time to comply and the number ofpayments in particular economies that drive theregional changes.

The chapter concludes with in-depth country

case studies from PwC tax partners in Azerbaijan,Mexico, Poland, Uruguay and ambia lookingat how the tax systems in those countries haveevolved over the ten editions of Paying Taxes.

Chapter 3 includes three views on differentaspects of global tax policy and administration:

• Dr Andrew Sentance, PwC UK’s SeniorEconomic Adviser looks at the burden imposedon employers and employees by labourtaxes and the role of employment taxes ina balanced tax system.

• Amal Lahrlid and Nicholas O’Donovan ofPwC’s Global Tax Governance team lookat the links between tax systems and theinformal economy.

• Eelco van der Enden and Kuralay Baisalbayevafrom PwC Netherlands address the issuesaround improving trust and transparencybetween taxpayers and tax authorities,especially in Africa.

8/19/2019 Paying Taxes 2016 (1)

16/153

8/19/2019 Paying Taxes 2016 (1)

17/153

12Recent developments in the Paying Taxes sub-indicators

Taxes are essential to nance public services.Governments need sustainable funding for socialprograms and public investments to promoteeconomic growth and development. Programsproviding health, education, infrastructure andother amenities are important to achieve thecommon goal of a prosperous, functional andorderly society. And they require that governmentsraise revenues. But the challenge is to design a taxsystem that will not discourage taxpayers fromformally participating. The design of a tax systemcan inuencerms’ decisions on whether to operatein the formal sector as well as have other importanteconomic effects. And analysis suggests that wherethe tax system makes compliance more dif cult,rms are more likely to perceive corruption as aproblem (Figure 1.1).

This is the 10th edition of Paying Taxes:The lobal Picture. The core purpose of the

Doing Business indicators on paying taxes remainsunchanged: measuring the administrativeand nancial burden for rms of complying

with tax obligations.8 In recent years, as moreeconomies have directed efforts toward makingtax compliance simpler and easier, the analysishas shifted to detailing features of reforms easingthe administrative burden. And this year, for therst time, Doing Business is looking at the post-ling process, through a pilot study of proceduresrelating to value added tax ( AT) refunds, taxaudits and tax appeals. Measures of these aspectsare not part of the Paying Taxes sub-indicatorsset but are being considered for inclusion infuture years.

Figure 1.1

The greater the difculty of paying taxes, the more likely rms are to perceive corruption as a problem

7

6

5

4

3

2

1

0

70

60

50

40

30

20

10

0Most difficult Least difficult

Economies scored by ease of paying taxes, quartiles

Score (1-7) Score (0-100)

m o r e / f e w e r i r r e g u l a r p a y m e n t s

l e s s / m or e c or r u pt

Note: The sample comprises 144 economies. The economies are grouped into uartiles by their distance to frontier score for paying ta xes, which capturesthe gap between each economys performance on the Doing Business indicators on paying taxes and the best per formance recorded on these indicators.The score for irregular payments and bribes is an average across ve components of rms perceptions of how common it is to make undocumented extrapayments or bribes in connection with 1 imports and exports 2 public utilities 3 annual tax payments 4 awarding of public contracts and licenses and 5 obtaining favourable udicial decisions. The answers range from 1 very common to 7 never occurs . The score for the corruption perceptions index relates tothe degree to which corruption is perceived to exist among public ofcials and politicians by business people and country analysts. core ranges between 100 highly clean and 0 highly corrupt .Sources: Doing Business database World conomic Forum 2014, Transparency nternational 2014.

8 The Paying Taxes sub-indicators comprise three measures Total Tax Rate as a percentage of commercial prot a measure of the nancial burden , number oftax payments and time in hours per year measures of the administrative burden . ee Appendix 1 for details.

Corruption perceptions index

rregular payments and bribes

8/19/2019 Paying Taxes 2016 (1)

18/153

13 Paying Taxes 2016. World Bank Group commentary

Who reformed in 2014 and what didthey do?

Doing Business recorded 40 reforms in 2014making it easier or less costly for rms to paytaxes. OECD high-income economies accountedfor the largest number, with nine. Globally, themost common feature of tax reforms in the pastyear was the introduction or enhancement ofelectronic systems for ling and paying taxes.Such changes were implemented by 18 economies:Costa Rica, Cyprus, Indonesia, amaica, Malaysia,Montenegro, Morocco, Mozambique, Peru,Poland, Rwanda, Serbia, the Slovak Republic,Spain, Tajikistan, Uruguay, ietnam and ambia.Businesses in these economies now le tax returnselectronically, spending less time to prepare, leand pay taxes. Beyond saving businesses time,electronic ling helps prevent human errorsin returns. And by increasing transparency,electronic ling limits opportunities for corruptionand bribery.

Serbia improved the ease of paying taxes the mostin 2014. The government initiated a ‘consolidated

billing project’ that electronically centralisedall communications between the taxpayer andthe tax administration, including the ling andpayment of taxes. The project consolidatedthe payment of different taxes into a singleaccount and automated the exchange of data

with banks (electronic banking). The majorityof businesses now le and pay AT and socialsecurity contributions online. This has reducedadministrative costs both for businesses (incomplying with tax obligations) and for the taxadministration (in printing invoices). In addition,starting 1 anuary 2014, the governmentabolished the urban land usage fee – a fee thatpreviously had to be paid monthly and in person.The changes reduced the time it takes to comply

with tax obligations in a year by 34.75 hours andthe number of payments by 25 (Figure 1.2).

Spain was also among the economies that launchedan integrated online platform for submitting taxreturns. In addition, it simplied compliance with AT obligations by introducing a single electronicform within the new online system and promotingthe use of electronic invoices. The system enablestaxpayers to electronically retrieve previous years’ AT forms and use them to automatically populatesome of the elds in the current year’s forms.Moreover, Spain reduced the corporate income taxrate for new companies incorporated on or after1 anuary 2013, from a 30% at rate to 15% forthe rst 300,000 and 20% thereafter. Spain alsoreduced the environmental tax rate. At the sametime, however, Spain limited the deductibility ofcertain expenses with the aim of broadening thebase for corporate income tax. These changesreduced the Total Tax Rate by 8.1 percentagepoints and the time required for tax compliance ina year by 9 hours.

Four economies – The Gambia; Hong KongSAR, China; Maldives; and ietnam – tookother measures to simplify compliance with

tax obligations. For example, The Gambiaimproved its bookkeeping system for ATaccounts to better track the input and outputrecords required for ling AT returns. ietnamreduced the frequency of AT lings frommonthly to quarterly for companies with anannual turnover of 50 billion dong (about2.3million) or less. Four other economies – BruneiDarussalam, Kosovo, Mexico and Serbia – mergedor eliminated certain taxes. Mexico abolished thebusiness at tax on 1 anuary 2014. This tax hadto be calculated alongside the corporate incometax liability, and the higher of the two wouldthen be taken as the nal income tax liability forthe year. Calculating the business at tax was along process based on cash inows and outows,and the elimination of the tax reduced the timerequired for tax compliance in a year by 48 hours.

300

275

250

225

200 2013 2014

Time to comply (hours per year)

42payments

67 payments

Figure 1.2

erbia has made complying with tax obligations easier for companies

Source: Doing Business database.

8/19/2019 Paying Taxes 2016 (1)

19/153


Table 1.1Who made paying taxes easier and less costly in 2014?

Easing

compliance

ntroduced orenhanced electronicsystems

Costa Rica Cyprus ndonesia amaica alaysia ontenegro orocco oambiue Peru Poland Rwanda erbia lovak Republic pain Ta ikistan Uruguay ietnam ambia

erbia introduced an online system for ling andpaying AT and social security contributions in 2014.ndonesia introduced an online system for ling andpaying social security contributions.

Merged or eliminatedtaxes other than prottax

Brunei arussalam Kosovo Mexico erbia Mexico abolished the business at tax on 1 anuary2014. erbia abolished the urban land usage feestarting 1 anuary 2014.

implied taxcompliance process

The Gambia ong Kong AR, China Maldives ietnam

The Gambia improved its bookkeeping system for AT accounts to better track the reuisite input andoutput records for ling AT returns. ietnam reducedthe freuency of AT lings from monthly to uarterly

for companies with an annual turnover of 50 billiondong about 2.3 million or less.

Reducing

taxes

Reduced prot taxrate

Angola Bangladesh Brunei arussalam Finland France The Gambia Guatemala ong Kong AR, China amaica orway Portugal lovak Republic pain wailand Tunisia United Kingdom ietnam

orway reduced the corporate income tax rate from28% to 27% for 2014. Tunisia reduced the corporateincome tax rate from 30% to 25% for the same year.pain reduced the corporate income tax rate forcompanies incorporated on or after 1 anuary 2013,from the standard rate of 30% to 15% for the rst300,000 and 20% thereafter.

Reduced labourtaxes and mandatorycontributions

China hanghai Colombia France Greece ndonesia Mexico Romania United Kingdom

Romania reduced the social security contributionrate paid by employers from 20.8% to 15.8% from1 ctober 2014.

Reduced taxes otherthan prot tax and

labour taxes

The Bahamas Greece Malaysia RussianFederation pain

Malaysia reduced the property tax rate from 12%to 10% of the annual rental value for commercial

properties for 2014.

Allowed moredeductible expensesor depreciation

Brunei arussalam Greece amaica Moambiue Portugal lovak Republic Vietnam

Portugal allowed 100% of loss carried forward to bededucted for the calculation of taxable prot from1 anuary 2014. Brunei arussalam increased theinitial capital allowance for industrial buildings from20% to 40% and the annual allowance from 4% to20% for 2014.

Other economies directed efforts at reducingthe nancial burden of taxes on businesses andkeeping tax rates at a reasonable level. Seventeeneconomies reduced prot tax rates in scal 2014(Table 1.1). These economies span all incomegroups – high income (nine economies), uppermiddle income (three), lower middle income(four) and low income (one). Norway reduced thecorporate income tax rate from 28% to 27%.

Portugal made paying taxes less costly by bothlowering the corporate income tax rate andincreasing the allowable amount of the losscarried forward.9 Brunei Darussalam, Greece,amaica, Mozambique, the Slovak Republicand Vietnam also effectively reduced thenancial burden of prot taxes on companiesby introducing changes to tax depreciationrules and tax deductions.10

The Bahamas, Greece, Malaysia, the RussianFederation and Spain reduced taxes other thanprot and labour taxes. Malaysia reduced theproperty tax rate from 12% to 10% of the annualrental value for commercial properties for2014. Greece made insurance premiums fullytax deductible in addition to reducing propertytax rates.

In most economies where the authorities haveopted to reduce the tax burden on the businesscommunity, they have also attempted to broadenthe tax base and protect government revenue. In afew cases in recent years, particularly in economies

where tax rates are very high, the motivation hasbeen more closely linked to reducing distortions,such as high levels of tax evasion or a sizableinformal sector.

9 The corporate income tax was changed from a 25% at rate to a progressive tax system, with the rst 15,000 taxed at 17% and any amount above that ta xedat 23%.

10 Tax deductions are expenses that a company is allowed to deduct from its income for the purpose of calculating corporate income ta x.

Note: The reforms shown are those recorded from 1 anuary 2014, to 31 ecember 2014.Source: Doing Business database.

8/19/2019 Paying Taxes 2016 (1)

20/153


What trends emerged in tax reformsover the past ve years?Over the past 11 years Doing Business recordedreforms making it easier or less costly for rms topay taxes in 149 economies – around 36 reformsa year on average. For the rst six years of thisperiod (2004-09) the most common featureof the reforms was the reduction of prot taxrates. But in the past ve years (2010-14) theintroduction or enhancement of electronicsystems for ling and paying taxes was the mostcommon feature. This shift coincided with thenancial crisis of 2008/09. In responding to thechallenges of the economic downturn, manygovernments sought to strike the right balancebetween reducing the scal decit and promotinggrowth. One study conrmed the importance ofa greater focus on simplifying tax compliance,highlighting the need to increase the simplicityand homogeneity of scal systems so as toprovide a stable and predictable environmentfor business.11

Using technology to simplify complianceElectronic systems for ling and paying taxes,if implemented well and used by most taxpayers,benet both tax authorities and rms. For taxauthorities, electronic ling lightens the workloadand reduces operational costs – such as the costsof processing, storing and handling tax returns.It also increases tax compliance and saves time.For taxpayers, electronic ling saves time byreducing calculation errors in tax returns andmaking it easier to prepare, le and pay taxes.12

And it benets both sides by reducing potentialincidents of corruption, which are more likelyto occur with more frequent contact betweentaxpayers and tax administration staff.

Rolling out an electronic ling and paymentsystem and educating taxpayers in its use arenot easy tasks for a government. The necessaryinfrastructure must be put into place, and this canbe especially challenging where not everyone hasbroadband access. et by 2014, 84 economies hadfully implemented electronic ling and paymentof taxes (Figure 1.3). In the past ve years Doing

Business recorded 70 reforms in 53 economiesintroducing or enhancing electronic systems forling and paying taxes. More than a third of theseeconomies adopted an electronic system for therst time.

11 udson and Roy-Chowdhury 2010.12 olt and Bird 2008

Figure 1.3

ighty-four economies have a fully implemented electronic system for ling and paying taxes

C high income 30 of 32

urope Central Asia 20 of 25

atin America Caribbean 14 of 32

ast Asia Pacic 8 of 25

Middle ast orth Africa 5 of 20

ub-aharan Africa 5 of 47

outh Asia 2 of 8

lectronic system not available or not usedby ma ority of businesses 105

Note: An electronic system is counted where both the ling and payment of taxes are done online and used by the ma ority of medium-sie businesses.Sources: Doing Business database.

8/19/2019 Paying Taxes 2016 (1)

21/153


Among OECD high-income economies, the SlovakRepublic both fully implemented and furtherimproved its electronic ling system in the past ve years. The country’s government has beenfocusing on modernising and increasing theef ciency of public administration.13 As part ofthis effort, it implemented multiple changes in taxadministration, from rationalising the networkof tax of ces (reducing their number from 101to 8 in anuary 2012) to improving tax ling andpayment processes.

The Slovak Republic’s rst attempt to introduceelectronic ling of taxes was in 2005. For the rstseveral years, however, companies continued toprefer ling and paying taxes in person. But as theelectronic system was improved, more taxpayersbegan to use it, and in 2011 the Slovak Republicmade electronic ling mandatory for health andsocial insurance contributions for companies withmore than 20 employees. By that time electronicpayment of taxes was already widespread.Electronic ling was also expected to be mademandatory for VAT in 2011, but the deadline was

postponed several times. Not until anuary 2014did the majority of companies start ling VATreturns electronically.

The global trend toward greater use of electronictax ling and payment systems is likely tocontinue. In the next few years many other OECDhigh-income economies, having introducedrequirements for electronic ling and paymentfor larger businesses, plan to extend them tosmaller ones. Economies in Europe & Central Asiaimplemented the most reforms (22) in electronictax ling and payment in the past ve years(Figure 1.4). Economies in South Asia had thefewest, with only three.

13 C 2014b.

Figure 1.4

urope and Central Asia accounted for the most reforms in electronic tax ling and payment in the past ve years

East Asia & Pacific

Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

OECD high income

South Asia

Sub-Saharan Africa

Reforms introducing or enhancing electronic system for filing and paying taxes

2010 2011 2012 2013 2014

3

4

1

2

1

1

3

3

1

2

2

3

6

2

2

3

4

4

1

3

3

6

2

2

5

1

Note: The reforms shown for each year until 2014 are those recorded from 1 une of that year to 1 une of the following year. For 2014 the reforms shown arethose recorded from 1 anuary to 31 ecember of that year.Source: Doing Business database. Doing Business uses the World Bank regional and income group classications, available at http data.worldbank.org about country-and-lending-groups. Regional data averages presented in gures and tables in the Doing Business report include economies from all incomegroups low, lower middle, upper middle and high income , though C high income economies are assigned the regional classication.

8/19/2019 Paying Taxes 2016 (1)

22/153

17 Paying Taxes 2015.

Thirteen economies have no requirement foremployers to pay social security contributions orlabour taxes – Afghanistan, Armenia, Bangladesh,Bhutan, Botswana, the Comoros, Eritrea,Georgia, Lesotho, the former ugoslav Republic ofMacedonia, Suriname, Timor-Leste, and West Bankand Gaza. In some economies the responsibility forpaying labour taxes falls on the employee ratherthan the employer. Such cases are beyond thescope of the Doing Business analysis and are notcaptured by the Paying Taxes sub-indicators.

Globally, labour taxes and contributions paid bythe employer account on average for almost 40%of the Total Tax Rate for the case study company.‘Other’ taxes account for 20% on average.

Allowing more tax deductions and taxdepreciationThe statutory tax rate provides the factor to beapplied to the tax base. The tax base is thereforeanother factor affect ing a company’s tax liability.For corporate income tax the tax base generallyis taxable prots after accounting for tax-

deductible expenses and t he maximum allowedannual tax depreciation.

These allowed deductions can make a substantialdifference for the effective total tax burden.In the Philippines, for example, the case studycompany would face a statutory rate for corporateincome tax of 30% but pay an effective rateafter allowable deductions of around 20% of itscommercial prot. In New ealand the same casestudy company would face a statutory rate of 28%but an effective tax rate of around 30% of thecommercial prot. In some economies, however,the statutory rate is very close to the effectivetax as a share of commercial prot. This is thecase in Kenya, for example. In recent years someeconomies have increased allowable deductions.

In 2012, Cyprus increased the ta x depreciationrate for industrial and hotel buildings purchasedin 2012, 2013 and 2014 from 4% to 7%. In 2012,Belarus allowed 2% of operating loss occurred inprevious periods to be tax deductible. Previously,operating losses were not ta x deductible.

Reducing tax ratesThe reduction of corporate income tax ratesremains a very common feature of reformsmaking it easier or less costly to pay taxes –the second most common one over the past veyears. Globally, the Total Tax Rate as calculatedfor the Doing Business case study companyaverages 40.76% of commercial prot. This is4 percentage points lower than ve years ago,thanks in large part to 55 reforms reducing prottax rates in 42 economies. OECD high-incomeeconomies implemented the largest number ofreforms reducing prot tax rates, followed byeconomies in Sub-Saharan Africa and in East Asia& the Pacic.

The United Kingdom, for example, reduced itscorporate tax rate progressively and smoothly. In2010 the corporate income tax rate was 28%. Thisrate dropped to 26% starting April 2011, then to24% in 2012, 23% in 2013, 21% in 2014 and 20%in April 2015. The rate is expected to be furtherreduced to 19% in 2017 and to 18% by 2020. Effortsin many economies to reduce the tax burden on the

corporate sector have often been accompanied bya broadening of the tax base and other measures toprotect revenue levels, against the background offurther attempts atscal consolidation followingthe emergence of large budget decits after theglobal nancial crisis.

Besides the prot tax, the Total Tax Rate alsoincludes two other types of taxes: labour taxes andgovernment-mandated contributions and ‘other’taxes.14 Seventeen economies lowered labourtaxes and mandatory contributions in the past veyears. For example, Romania reduced the socialsecurity contribution rate paid by employers by 5percentage points, from 20.8% to 15.8%, effective 1October 2014. Colombia used a different approach,selectively lowering the labour tax burden. Asof May 2013 companies were exempted frompaying two types of contributions for employeesearning less than 10 times the statutory minimum

wage – the 3% contribution for the ColombianFamily Welfare Institute and the 2% contributionfor the National Apprenticeship Service (SENA).This reduced the payroll tax from 9% to 4%.In 2014 the exemption was extended to the8.5% welfare contribution.

14 thers include property taxes, turnover taxes, property transfer ta xes, road taxes, environmental taxes and other small taxes such as municipal fees andvehicle taxes .

8/19/2019 Paying Taxes 2016 (1)

23/153


Making tax compliance easier Globally on average, complying with taxregulations would take 26 payments and261 hours a year for the case study company.This reects improvements, with tax compliancetaking 4 fewer payments and 15 fewer hourstoday on average than ve years ago. Indeed,38 economies made compliance easier over thepast ve years by simplifying processes or bymerging or eliminating some taxes. For example,in 2010 Mexico eliminated the requirement to lea yearly VAT return as well as the requirementto le the dictamen scal (tax certication),

which amounted to more than 40 pages.

Instead, companies prepare andle a report witha 19-page annex. In 2012 the Republic of Congointroduced a single tax on salaries at a statutoryrate of 7.5%, replacing three labour taxes that hadbeen levied separately: the National ConstructionFund contribution; the lump sum tax owed byemployers and payers of a life annuity; and thetax on training.

Economies worldwide continue to introducesubstantial improvements in their taxenvironment. As more economies have adoptedthe good practices of those with the bestperformance on the Paying Taxes sub-indicators,these efforts have eased the administrativeburden of paying taxes for companies.

On average around the world, tax

compliance takes 4 payments fewerand 15 hours less today than

8/19/2019 Paying Taxes 2016 (1)

24/153


What’s next for the Paying Taxes sub-indicators?The existing Paying Taxes sub-indicators measurethe cost of complying with tax obligationsthrough the stage of ling the tax returns andpaying the taxes. But this is not the end of thestory. Businesses often have to complete post-ling procedures such as claiming a VAT refundor receiving a tax audit – and these can be themost dif cult interactions that they might have

with the tax authority. In recent years Doing Business has been asking respondents for their views on a range of aspects of tax administration,including how easy it is to deal with taxauthorities, with tax audits and with other post-ling procedures. In the majority of economiesthe post-ling process is the aspect of the taxsystem that respondents felt was most in needof improvement.

Doing Business is expanding the analysis of PayingTaxes as a pilot this year to include three aspectsof the post-ling process: settlement of VATrefund claims resulting from a large purchase

of raw material; tax audits; and administrativetax appeals. This expanded analysis covers thefull cycle of a taxpayer’s interaction with taxauthorities, encompassing all major transactionsthat generate external costs to the taxpayer.The new area of research matters because of theregressive nature of tax compliance costs, whichfall disproportionately on lower-income peopleand small and medium-size enterprises.

Settlement of VAT refund claims VAT is largely designed to be borne by the nalconsumer, not by businesses, so VAT refunds area natural part of a modern VAT system. Accordingto OECD guidelines, a VAT system should beneutral and ef cient.15 The main premise is thatthe burden of VAT should not fall on businesses.When businesses incur VAT that is not refunded,or that can be reclaimed only with long delaysand large compliance costs, the principles ofneutrality and ef ciency are undermined.This alters the nature of VAT by making it inpart a tax on production. Where this occurs,any irrecoverable tax and the resulting cascadingeffect on the nal tax liability might distortmarket prices and competition and consequentlyaffect growth.16

15 OECD 2014a.16 OECD 2014a.17 Harrison and Krelove 2005.

A 2005 International Monetary Fund (IMF) studythat examined the VAT refund mechanism in36 countries around the world showed that therefunding of credits was the Achilles’ heel ofa VAT system.17 Even in countries where refundprocedures are in place, businesses are oftenconcerned about the complexity of the process.The study looked at the treatment of VAT creditsby the tax authorities, the size of refund claims,the procedures followed by refund claimants andthe time and arrangements for processing VATrefunds. The results show that statutory timelimits for making refunds are crucial but are oftennot applied in practice.

The preliminary ndings of the new researchby Doing Business show that many economieshave legal time limits for issuing a decisionon a VAT refund claim and processing thepayment if approved. These include Albania,Belarus, Cyprus, Georgia, Hungary, Iceland,Indonesia, Israel, Lithuania, Mexico, Moldova,the Netherlands, Norway, Rwanda and theSlovak Republic. In Albania, for example, the tax

administration has 60 days to issue a decisionfrom the time a taxpayer submits a requestfor a refund and 30 days to make a payment ifapproved. If a tax audit is conducted before thepayment is made, however, the statutory timelineis put on hold during the audit. In Moldova,by contrast, the timeline includes time for taxinspections. The tax authority has a total of45 days from the time the refund request issubmitted, from which 37 days are available forconducting a tax inspection and issuing a decisionand eight days for making the payment.

In some economies the time limits depend on the value of the claim. In Romania, for example, if theclaim is less than lei 45,000 (about 11,500),the time limit for issuing a decision is ve daysand the refund is paid automatically. If the claimis more than lei 45,000, the time limit for bothapproval and payment is 45 days.

8/19/2019 Paying Taxes 2016 (1)

25/153


According to respondents, the tax authorityabides by the time limits in most cases.In Georgia, Greece, Romania and Rwanda,however, respondents reported signicant delays.

And in some countries – such as Australia, France,Germany and apan – there are no legal timelimits. In France, while there are no legal timelimits, a claim is considered to be rejected if noresponse is received within six months.

To reduce the number of refunds, most VATsystems allow VAT credits to be carried forwardfor a specied period. The rationale for thisarrangement is that a tax period in which abusiness has a VAT credit would normally befollowed by periods in which it has net VATliabilities that would absorb the credit broughtforward, especially if the business is oneproducing and selling in the domestic market.

A refund is then paid only if a credit remains tobe recovered by the taxpayer at the end of thecarry-forward period.

In a few economies the excess VAT input can be

credited against other tax liabilities. In Singapore,for example, the tax authority can withhold a VATrefund to offset any outstanding tax liabilities(for both sales tax and corporate tax). In Germanyin certain cases a company’s excess VAT inputcan offset its income tax obligation. In Canadaa taxpayer has to make a specic request inadvance to have the Canada Revenue Agencytransfer a VAT credit or part of a credit to otheraccounts if the taxpayer owes other taxes underthe agency’s jurisdiction.

In some economies taxpayers with excess VATinput arising entirely from domestic transactionsare not entitled to a refund unless they are azero-rated supplier (that is, an exporter). Instead,their excess VAT input is carried forward as anoffset against future liabilities. This is the casein Antigua and Barbuda, Argentina, Guatemala,Maldives and Sri Lanka. In Sri Lanka excess

VAT input from domestic transactions is carriedforward to subsequent tax periods to offset VAToutput or, if there will be no VAT liability in thefuture, to offset corporate income tax liability.In Antigua and Barbuda excess VAT input iscarried forward to the next six consecutive taxperiods. Any credit remaining after six months is

then refunded within the following three months.

If the payment of a refund is delayed, the VATlaws in some economies require the tax authorityto pay interest on the late refund. The interestusually begins to accrue the rst day after the taxauthority misses the deadline for the refund andcontinues to accrue until the day the funds aretransferred to the taxpayer’s account. In Albaniathe interest rate is 120% of the interbank interestrate. In Armenia, where the tax authority isrequired to pay VAT refunds within 90 days aftertheir approval, interest is paid for each day ofdelay at a rate recalculated daily based on thecentral bank’s published rate. The practice issimilar in Indonesia, Lithuania, Luxembourg,Malta, Mauritius, Norway, Singapore andSlovenia. In Croatia taxpayers have to submit aseparate request for interest payment. In practice,however, the tax authority usually rejects suchrequests for default interest for a delayed taxrefund. In Argentina regulation provides for a0.5% monthly interest rate from the day a refundclaim is led.

Several factors can contribute to delays in making

VAT refunds. To begin with, delays could arise atthe time a VAT refund claim is submitted if thetax authorities require supporting documents,such as copies of invoices,nancial statementsor contracts with suppliers. In some economies,however, no additional documents are requiredunless there is an investigation. And in someeconomies taxpayers are not required to submita separate form to claim a VAT refund; instead,they need only check a box in the VAT return.This is the case in Antigua and Barbuda, Belgium,Croatia, the Czech Republic, the Arab Republic ofEgypt and Germany.

Once the claim is submitted, delays might arisein inputting the information, checking theapplication and deciding whether an audit isneeded. If an audit is needed, this would imposeadditional delays as the audit is arranged andconducted and reports are completed. Moreover,once the audit takes place, there are often delaysas the audit teams seek additional information oras the auditors write up their reports and approvethe claim for repayment.

8/19/2019 Paying Taxes 2016 (1)

26/153

8/19/2019 Paying Taxes 2016 (1)

27/153


Tax appeals A certain number of tax disputes is a normal partof any system of taxation. But a serious backlogof tax cases threatens revenue collection.25 So disputes between the tax authority andtaxpayers need to be resolved in a fair, timelyand ef cient manner.26 As a rst step, taxpayersshould try to settle the nal tax assessment withthe tax of cials who rst issued the assessment.If a dispute continues, taxpayers should have theopportunity, within a prescribed period of time,to appeal to a special administrative appeal boardor department.

The creation of appeal boards within taxadministrations can be an effective tool foraddressing and resolving complaints andavoiding overcrowding in the courts. Aninternal administrative review by the taxauthorities – through a process removed asmuch as possible from the original auditor andassessor – can ensure independence in handlingcomplaint cases. Surprisingly, many economiesdo not separate the appeal board from the

auditor. This is the case in Armenia, Bosniaand Herzegovina, the Arab Republic of Egypt,Germany, Israel, Moldova, Namibia, Rwandaand Switzerland

In addition to relying on a separate appeal boardor division, there are other possible ways toconduct these internal reviews, such as througha senior of cial who does not directly supervisethe original case auditor or through a new auditor

with no previous knowledge of the case. To ensurethat those conducting the reviews are qualiedand unbiased, it is important to ensure that thereare clearly dened criteria for their selection.

Also recommended is that operational manualsbe developed, decisions published and annualstatistics on appeals reported. Most economiesimpose time frames (legislatively and sometimesadministratively) on taxpayers and the internalreview authority for each stage. The objectiveis quick resolution of a tax dispute. To ensurefairness, taxpayers who disagree with the outcomeof the internal review should be able to appeal thedecision to the courts.

The new research on settlement of VAT refundclaims, tax audits and tax appeals provides abroader data set on the tax compliance process.In line with the core purpose of the existing Paying

Taxes sub-indicators, the objective is to enablepolicy makers seeking to design an optimal taxsystem to benchmark their economy against otherson the administrative burden of complying withpost-ling procedures.

25 Gordon 1996.26 Thuronyi 2003.

eferences Alm, ames, and Michael McKee. 2006. Audit Certainty, Audit Productivity, and Taxpayer Compliance. Working Paper 06-43, Andrew oung

School of Policy Studies, Georgia State University, Atlanta. Available at Social Sc ience Research Network (SSRN): http://ssrn.com/abstract897341.

Gordon, Richard. 1996. Law of Tax Administration and Procedure. In Tax aw Design and Drafting, vol. 1, edited by Victor Thuronyi. Washington,DC: International Monetary Fund.

Gupta, Manish, and Vishnuprasad Nagadevara. 2007. Audit Selection Strategy for Improving Tax Compliance: Application of Data MiningTechniques. In oundations of government, edited by Ashok Agarwal and V. Venkata Ramana. Hyderabad: Computer Society of India.

Harrison, Graham, and Russell Krelove. 2005. VAT Refunds: A Review of Country Experience. IMF Working Paper 05/218, International MonetaryFund, Washington, DC.

Hudson, Veena, and Chas Roy-Chowdhury. 2010. Tax after the Financial Crisis. ACCA Position Paper, Association of Chartered Certied Accountants, London. http://www.accaglobal.com/content/dam/acca/global/pdf/pb-TaxAftertheFinancialCrisis.pdf.

Khwaja, Munawer Sultan, Rajul Awasthi and an Loeprick, eds. 2011. isk Based Tax Audits: Approaches and ountry xperience s. Washington, DC:World Bank.

OECD (Organisation for Economic Co-operation and Development). 2014a. nternational AT/ T uidelines. Paris: OECD.. 2014b. D conomic urveys:lovak epublic 201. Paris: OECD. doi:10.1787/ecosurveys-svk-2014-en.

Snow, Arthur, and Ronald S. Warren r. 2005. Tax Evasion under Random Audits with Uncertain Detection. conomics etters 88: 97–100.doi:10.1016/j.econlet.2004.12.026.

Thuronyi, Victor. 2003. How Can an Excessive Volume of Tax Disputes Be Dealt With? Legal Department, International Monetary Fund,Washington, DC.

World Economic Forum. 2014. lobal ompetitiveness eport 201 2015. Geneva: World Economic Forum.

olt, Eric, and Richard Bird. 2008. Technology and Taxation in Developing Countries: From Hand to Mouse. ational Tax ournal 61: 791–821.

8/19/2019 Paying Taxes 2016 (1)

28/153

Chapter 2: PwC commentary

23 Paying Taxes 2016. PwC commentary

8/19/2019 Paying Taxes 2016 (1)

29/153

While there is increasing recognition of the contribution that businessesmake to the societies in which they operate, and an appetite by businessesto show how they make this contribution through the various taxesthat they pay and collect, there is still a need for tax systems to be asstraightforward and ef cient as possible.

In PwC’s 18th Annual Global CEO Survey,27 tax remains in the top veof the perceived issues for business, with seven in ten CEOs (70%)somewhat or extremely concerned about the increasing tax levied ontheir businesses. For many business leaders, the primary tax focus is stilloften corporate income taxes, but for the operation of a business, other

taxes such as VAT, sales taxes, labour taxes and social contributionsand sundry other taxes including property taxes and environmentallevies can increase compliance time and have a signicant impact on thebottom line.

Paying Taxes takes into account all of the different business taxes thataffect our case study company, and in this section we comment on howthe cost and compliance burden of these taxes have changed around the world both in the last year and over the period covered by the ten editionsof Paying Taxes. We also include in-depth case studies for Azerbaijan,

Mexico, Poland, Uruguay and

ambia.

27 http://www.pwc.com/gx/en/ceo-agenda/ceo-survey.html

24

8/19/2019 Paying Taxes 2016 (1)

30/153


The global results

8/19/2019 Paying Taxes 2016 (1)

31/153

26The global results

As shown in Figure 2.1, in the last year, theaverages for the three Paying Taxes sub-indicatorshave continued to fall. On average across the

world in 2014 our case study company paid taxesamounting to 40.8% of its commercial prot, took261 hours to prepare, le and pay the three maintaxes and made 25.6 tax payments.

Since last year the falls have been modest.The average global Total Tax Rate has fallen by0.1 percentage points; the time to comply hasreduced by 2 hours; and the number of paymentshas dropped by 0.6 payments on average. Therelatively small falls at a global level howevermask a much more varied picture at a regionaland economy level, particularly for the TotalTax Rate.

Figure 2.1

Averages for the three Paying Taxes sub-indicators have fallen since last year

Source: PwC Paying Taxes 2016 analysis.

Profit taxes

Labour taxes

Other taxes

Total Tax Rate

2014: 40.8%

2013:40.9%

Time to comply

2014: 261 hours

2013:263 hours

Number of payments

2014: 25.6

2013:26.2

8.4 8.4 100 99 12.712.3

10.3 10.1

3.2 3.2

94 93

69 69

16.2 16.2

16.3 16.2

8/19/2019 Paying Taxes 2016 (1)

32/153


While the average global Total Tax Rate fellbetween 2013 and 2014, in Africa, Central Asia &Eastern Europe and the Middle East, the Total TaxRate rose due to various increases in labour taxes,social security contributions, corporate incometaxes and property taxes. Indeed, 46 economiesincreased their Total Tax Rate in the period

while only 41 showed a decrease.28 The greatestincrease in any one economy was in Liberia wherethe introduction of a minimum tax increased theTotal Tax Rate by 14.6 percentage points to 47.8%.

At the other end of the spectrum, the greatest fallin the Total Tax Rate was by 8.1 percentage pointsin Spain to 50.0% where a lower rate of corporateincome tax was introduced for new companies.

As shown in Figure 2.2, labour and prot taxescontinue to account on average for a verysimilar proportion of the global Total Tax Rate.

As explained in the next section, there aresome regions, notably the EU & EFTA, wherethere appears to be a decrease in prot taxes,compensated in part by increases in labour and‘other’ taxes.


Figure 2.2

Movement in Total Tax Rate

20

15

10

5

0

Total Tax Rate (%)

2014: 16.6%

2014: 16.6%

2014: 8.8%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Labour taxes

Profit taxes

Other taxes

28 The movements in Total Tax Rate refer to a movement exhibited by the Total Tax Rates when rounded to one decimal place. Whe re the economy’s Total TaxRate is the weighted average of the Total Tax Rate of t wo cities, the movements in t he Total Tax Rates of the separate cities may differ. For example in Mexico,Mexico City’s Total Tax Rate increased by 0.019 percentage points while Monterrey’s decreased by 0.376 percentage points.

8/19/2019 Paying Taxes 2016 (1)

33/153

28The global results

The story for the time to comply sub-indicator ismore consistent than for the Total Tax Rate as inthe last year 34 economies showed a decrease intime while eight economies increased their timeto comply.

Many of the reductions in time to complyoccurred following the introduction andenhancement of electronic systems. In somecases, the electronic systems had been introducedin previous years, but it took some time for thesystems to start generating reductions in time,perhaps because teething problems needed to berectied, access had to be made easier or simplybecause time was needed before the systems wereadopted by the majority of taxpayers.

Notwithstanding the improvement in time tocomply with taxes globally, some economies sawincreases in the amount of time to comply owingto increased information or ling requirements(in Myanmar), or the introduction of new taxesfor example the Fairness Tax in Belgium and thenew VAT system in Kiribati.

Between 2013 and 2014 although the globalaverage for the payments sub-indicator fell by 0.6payments on average, the number of paymentsdecreased in 12 economies, but increased inanother 12. The reductions were largely due tothe introduction and increased use of electronicpayment and ling systems, most signicantlyfor VAT, though reductions in the number ofpayments for labour taxes and corporate incometaxes were also observed. Some of these decreasesare due to reforms that had taken place in earlieryears but where some time was needed beforethe systems were being used by the majority oftaxpayers. There were some economies where,although electronic ling had been availablefor some time, it had taken taxpayers a whileto become comfortable with making paymentselectronically. Other reasons for the fall in thenumber of payments sub-indicator relate tothe reduced frequency of payments (e.g. frommonthly to quarterly) and merging or abolishingtaxes such as in Serbia and Brunei Darussalam.

The increases in payments were a result of the

introduction of new taxes, or the separation ofpaying and ling requirements for certain typesof tax such as separating local and nationalcorporate income tax or splitting capital gains taxfrom corporate income tax.

8/19/2019 Paying Taxes 2016 (1)

34/153


Comparing theregions

8/19/2019 Paying Taxes 2016 (1)

35/153

30Comparing the regions

Figure 2.3 shows the Total Tax Rate for all thegeographic regions split between the threemain types of tax; prot taxes, labour taxes andmandatory contributions and ‘other’ taxes. Thischart allows us to compare not only the overalltax levied in each region, but also the extent to

which this falls on these three types of tax. Figure2.4 and Figure 2.5 show the regional splits ofthe time to comply and payments sub-indicatorsrespectively.

In spite of some improvements in its Total TaxRate and its time to comply, as explained inthe next section, the South American region isstill by far the region with the highest Total TaxRate, 55.0%, and the greatest time to comply,615 hours. To put this in perspective, the region

which stands second, Africa, has a Total Tax Rateof 46.9% and a time to comply of 313 hours. Onthe other hand, South America fares well as faras the number of payments is concerned as theavailability and use of electronic systems for lingand paying taxes is more prevalent than in someother regions.

From the charts in Appendix 2 it can be seenthat the high average Total Tax Rate and timeto comply in South America is due to it being aregion of extremes. Brazil has the greatest timeto comply in the world of 2,600 hours, whileSuriname has the lowest time to comply for theregion of just 199 hours. Similarly, Argentina’sTotal Tax Rate of 137.4% is the highest in theregion and the second highest in the world whilethe lowest in the region is Suriname’s at 27.9%.

Total Tax RateSouth America is also the region where ’Other’taxes account for the greatest proportion, almost40%, of the Total Tax Rate. ‘Other’ taxes accountfor 30% of the Total Tax Rate in Africa, now thatall but one economy has replaced its cascadingsales tax, and less than 21% in all other regions.The high reliance on ‘other’ taxes in South

America is largely driven by the presence ofmunicipal business taxes, which are calculated asa percentage of turnover, in Argentina, Colombiaand the Repblica Bolivariana de Venezuela.Bolivia has a similar national turnover-basedbusiness tax. These turnover-based taxes give riseto the high Total Tax Rates seen in South America.

While South America relies heavily on turnovertaxes, labour taxes continue to make up thehighest proportion of the Total Tax Rate in the EU& EFTA at 65% of the region’s average Total TaxRate and correspondingly the time to comply withlabour taxes accounts for a larger share of thetime to comply in the EU & EFTA than in manyother regions.

Figure 2.3

Total Tax Rate by region (%) for 2014

Profit taxes Labour taxes

South America

Africa

Central America& the Caribbean

World average

EU & EFTA

North America

Asia Pacific

Central Asia& Eastern Europe

Middle East

Other taxes

0 10 20 30 40 50 60

World average (40.8%)

16.7 16.4 21.9 55.0

17.7 14.9 14.3 46.9

22.3 12.2 7.6 42.1

16.2 16.2 8.4 40.8

12.6 26.5 1.5 40.6

19.2 16.0 3.7 38.9

17.6 10.5 7.5 35.6

12.9 18.8 3.5 35.2

9.4 14.2 0.6 24.2


8/19/2019 Paying Taxes 2016 (1)

36/153

31 Paying Taxes 2016. PwC commentaryPaying Taxes 2015.

Figure 2.4

Time to comply by region for 2014

100 200 300 400 500 600 7000

South America

Africa

World average

Central Asia& Eastern Europe

Asia PacificCentral America& the Caribbean

North America

EU & EFTA

Middle East

138 189 288 615

87 104 122 313

69 93 99 261

73 74 100 247

70 66 86 222

41 96 72 209

85 52 60 197

37 83 53 173

44 90 26 160

Profit taxes Labour taxes Consumption taxes

World average (261 hours)Source: PwC Paying Taxes 2016 analysis.

The two regions where labour taxes andmandatory contributions account for the largestshare of the Total Tax Rate – EU & EFTA andCentral Asia & Eastern Europe – have shownmarginal (0.1 percentage point) increases inthe past year in their labour tax Total Tax Rates.EU & EFTA has however reduced its prot taxTotal Tax Rate over the same period, while inCentral Asia & Eastern Europe the prot tax TotalTax Rate has increased. It is hard to draw clearconclusions from these changes other than to saythat individual economies in each region appearto be tailoring their tax policy based on their ownparticular circumstances and needs. While somereductions in prot taxes appear to be targetedat encouraging growth, as in Spain, or increasingheadline rates that are at the low end of the globalrange, as in Albania, we are also seeing relativelylow corporate income tax rates being reducedfurther as in Uzbekistan for example where therate fell from 9% to 8%.

In Africa we have seen an example where a taxreform for a particular type of tax has been

applied in opposite directions. ambia doubledits property transfer tax from 5% to 10% whileMauritius did the reverse halving its land transfertax from 10% to 5%. Similarly, Honduras,amaica and Liberia introduced a minimumcorporate income tax while The Bahamasabolished the 500,000 minimum at fee for thebusiness license tax. This again suggests thatindividual governments are reacting differently inthe face of what might be expected to be similareconomic pressures.

The Middle East remains the region with thelowest Total Tax Rate, as many governmentsin the region continue to rely on sources ofrevenue other than taxation. Nevertheless thereare ongoing projects in the region aimed atincreasing the tax base in a number of economies,particularly around VAT which does not affect theTotal Tax Rate for our case study company.

The compliance sub-indicatorsThe compliance sub-indicators for time to complyand the number of payments continue to displaymarked regional variation, with the variableavailability of electronic systems for ling andpaying tax being largely responsible.

It might be expected that the tax systems in North America and the EU & EFTA, being some of themost established, would also be the most complexand so the most time consuming. This is howevercounteracted by the extensive use of electronicsystems in these regions which allow much ofthe tax process to be automated. This also allowsfor frequent changes to be made to tax systems

without increasing the compliance burden. Forexample, there were a number of changes madeto the rates and thresholds of labour taxes andsocial security contributions in France and in theUK in the year. These did not however affect thecountries’ relatively low compliance times as thechanges were largely automatically applied.

8/19/2019 Paying Taxes 2016 (1)

37/153

8/19/2019 Paying Taxes 2016 (1)

38/153

How has the Paying Taxes picture changedover the ten

editions?

Paying Taxes 2016. PwC commentary33

8/19/2019 Paying Taxes 2016 (1)

39/153

34Changes over the ten editions

Trends in the global sub-indicators since the rst editionFigure 2.6 shows the trends in the global averagefor each of the Paying Taxes sub-indicators for the174 economies and cities for which we have datafor every year of the study. 15 economies and 11cities have joined the study since its inceptionand so are not included in the 10 year trends.From 2004, the global averages for all three sub-indicators for the original 174 economies havedecreased steadily in almost every year. We cansee that the pace of change has slowed, but notstopped, and one of the reasons for this is the

variation that we are now seeing in how tax reformis being applied in different economies and regionsas discussed earlier, and in the detailed regionalsections that follow.

Using the Figures 2.7, 2.9 and 2.12 we will takea look at the regional variation in the changes ineach of the three sub-indicators over the course ofthe period of the study.

In addition, we will look at the trend in each ofthe three sub-indicators by income level of theeconomies as shown in Figures 2.8, 2.11 and 2.14.

Figure 2.6

Trends in the global sub-indicators since 2004


70

60

50

40

30

20

10

0

% / Number Hours

Number of payment

2014: 26.3

Total Tax Rate

2014: 42.1%

Time to comply

2014: 269 hour

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

350

300

250

200

150

100

50

0

8/19/2019 Paying Taxes 2016 (1)

40/153


Total Tax RateOver the study period, Africa is clearly the region

with the greatest reduction in its Total Tax Rate, which is largely the result of the abolition ofcascading sales taxes in a number of economies.Over the ten editions of Paying Taxes, the AfricaTotal Tax Rate fell by 22.5 percentage points,falling below that of South America in 2012. In

Africa, only Comoros still retains its cascadingsales tax. Excluding the countries with thisexceptional movement on the abolition of thecascading sales taxes, the average Total Tax Ratefor Africa would have been much closer to theglobal average and the reduction would have beenmore in the order of 5 percentage points.

The next most signicant fall in Total Tax Rate wasby 19 percentage points in Central Asia & EasternEurope largely owing to reforms in Belarus whichreduced its Total Tax Rate from 137.3% in 2004to 51.8% in 2014, Uzbekistan, which reduced itsTotal Tax Rate from 96.7% in 2004 to 41.4% in2014, and Georgia, which reduced its Total TaxRate from 57.0% in 2004 to 16.4% in 2014. Thisyear however, the Total Tax Rate for Central Asia &Eastern Europe increased as a result of corporateincome tax increases in several economies. TheMiddle East’s Total Tax Rate fell dramatically by13.4 percentage points between 2004 and 2005

when Yemen abolished its cascading sales taxes,but has remain largely unchanged since then.

Figure 2.7

Trends in the Total Tax Rate since 2004

75

70

65

60

55

50

45

40

35

30

25

20

15

10

5

0

Total Tax Rate (%)

Middle East

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Asia Pacific

World average

Central America& the Caribbean

EU & EFTA North America

Central Asia &Eastern Europe

Africa

South America


8/19/2019 Paying Taxes 2016 (1)

41/153

36Changes over the ten editions

South America’s Total Tax Rate has been high, butrelatively stable, throughout the study, though itfell slightly in 2007, before increasing in 2010 andfalling again in 2014.

Over time, the Total Tax Rates of the regions hadappeared to be converging, but from about 2011,the convergence has stalled. The range of theTotal Tax Rates between the economy with thehighest Total Tax Rate and the economy with thelowest Total Tax Rate has however decreased from280 percentage points in 2004 to 208 percentagepoints today.

Note: The table includes only cha nges exhibited by the Total Tax Rates when rounded to one decimal place.Source: PwC Paying Taxes 2016 analysis.

Looking across the regions, not only does a widerange of Total Tax Rates still remain, but it is alsoapparent that some regions are more prone tochange than others and in different directions.Table 2.1 below shows the proportion of economies

within each region that exhibited

paying taxes 2016 (1)

Documents