Governments Heeding Call For Simpler Taxes

by Mike Godfrey, Tax-News.com, Washington

13 November 2008

A report published on Tuesday shows that tax authorities worldwide are overhauling tax systems by reducing taxes, streamlining administrative processes and modernising payment systems.

Paying Taxes 2009, the third report in an annual series by the World Bank, International Finance Corporation (IFC) and PricewaterhouseCoopers, is expected to prompt further dialogue between governments and businesses on improving tax systems.

The report draws on the Doing Business 2009 report that measures the ease of paying taxes for mid-size domestic companies in 181 economies, analyses tax systems and tracks related reform efforts.

Paying Taxes 2009 finds that in 2007/08:

• Thirty-six economies made it easier to pay taxes. This year’s top reformer is the Dominican Republic. Malaysia is the runner-up.
• The most popular reforms were reducing corporate income tax rates (in 21 economies) and improving electronic filing and payments systems efficiency (in 12 economies).
• Eight economies reduced the number of taxes paid by business.
• On average, corporate income tax accounts for only 13% of tax payments, 26% of compliance time, and 37% of the total tax rate (tax cost to the case study company).
• Employment taxes account for 34% of the total tax rate, taking into account only amounts borne by the employer.
• Employment taxes are particularly prevalent in the European Union and account for 65% of the total tax rate for the case study company in the region.
• On average, 36% of the overall time to comply with tax systems and 48% of the number of tax payments are spent on consumption taxes.

Susan Symons, PricewaterhouseCoopers LLP partner, said: “Corporate income tax reform has had a positive impact for government and business in a number of economies, yet these benefits could be multiplied if tax reform is looked at in its entirety. Tax reform should include all business taxes - not just corporate income tax. It should include all administrative aspects and the relationships between government and business generally. These are all fundamental to effective tax systems.”

Rita Ramalho, World Bank-IFC economist, added: “Countries are easing the complexity of their tax system and reducing the cost burden for businesses. Since 2004, average total tax rates have been reduced by 3% and time to comply with taxes decreased by 5%. This reform effort can broaden the tax base and increase tax revenues.”

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