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Middle East Easiest Place To Pay Taxes

Lorys Charalambous, Tax-News.com, Cyprus

25 November 2010


Qatar is the second easiest country in which to pay tax globally, according to Paying Taxes 2011, an annual report issued by PwC, the World Bank and the IFC. The Middle East overall has fewer and less complex tax laws than most countries, and all six GCC states fall within the top 14.

The report, which looks at 183 countries, finds that in the past year, 40 economies have made it easier to pay taxes, with Tunisia improving the most. Nearly 60% of the world’s economies have made significant business regulatory changes to ease paying taxes, despite the impact of the downturn and the sluggish global recovery.

“Governments have continued to improve and simplify their tax systems for local firms, and are seeing positive results,” said Neil Gregory, Director of the Global Indicators and Analysis department at the World Bank Group. “Best practices such as having one tax per tax base and the use of technology can simplify the compliance burden faced by firms.”

Those economies, especially the small ones, relying on one or two sectors to generate most government revenue, are able to function with a narrower tax base than would be possible in larger, more diverse economies. Maldives and Kiribati, for example, choose to tax mainly hotels and tourism, whereas economies such as Qatar, the United Arab Emirates, Saudi Arabia and Oman, being resource-rich economies raise most public revenue through means other than taxation.

Among both resource-rich economies and small island developing states there is great variation in rankings on the ease of paying taxes. Differences in applicable tax rates account for some of the variation. But so do differences in the administrative burden. Among resource-rich economies the Total Tax Rate (TTR) ranges from as low as 11% of profit in Qatar to as high as 72% in Algeria. Among small economies the TTR averages around 38%. The administrative burden of paying taxes varies just as dramatically – being small or obtaining revenue from resources does not always make taxation administratively easy. To comply with profit, consumption and labor taxes can take as little as 12 hours a year in the United Arab Emirates and 58 in The Bahamas, and as much as 424 hours in São Tomé and Principe and 938 in Nigeria.

The Paying Taxes 2011 report measures the ease of paying taxes by assessing the administrative burden for companies to comply with tax regulations, and by calculating companies’ total tax liability as a percentage of pre-tax profits. According to the study, the typical company measured pays nearly half of its commercial profit in taxes, spends seven weeks dealing with its tax affairs and makes a tax payment every 12 days.

“Taxes on company profits have fallen each year as governments around the world have reduced their corporate tax rates in an effort to encourage business investment and stimulate growth,” said Susan Symons, Total Tax Contribution Leader, PwC UK. “However, easing the compliance burden is also important for business and there is potential for more focus on this area”.

The study shows that paying taxes is easiest for business in high-income economies that have the lowest tax cost and the lowest administrative burden. These economies tend to have more mature tax systems, a lighter administrative touch, and greater use of the electronic interface with tax authorities.

TAGS: United Arab Emirates | compliance | tax | investment | business | tax compliance | Bahamas | Maldives | Niger | Nigeria | Saudi Arabia | law | Algeria | Kiribati | Qatar | tax rates | Tunisia | regulation | Oman

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