Overall tax cost and compliance burden lower for businesses around the world: World Bank and PwC Report

rp_2289691111111.jpgPaying taxes has become easier over the past year for medium-sized companies around the world, according to a new report released by the World Bank and PwC today. The time it takes such a company to meet its tax obligations dropped by four hours on average in 2013, according to the Paying Taxes, 2015 study. The report also discloses that the average total tax rate such a company paid and the number of payments also declined. This is a trend seen every year over the ten-year period covered by the publication.

Over the ten years of the study, 78% of the 189 economies covered in the report have made significant changes to their tax regimes at least once. The time and the number of payments required to comply with tax obligations have fallen over the ten-year period, as has the average total tax rate. The fastest rate of decline for the total tax rate occurred during the financial crisis from 2008-2010 with an average decline of 1.8 percentage points per year during that period. The rate of decline then started slowing in 2011.

Paul de Chalain, PwC Head of Tax, Africa, says: “The latest results from the Paying Taxes study show that many countries are continuing to make progress in tax reform, but there is still scope to streamline and simplify tax systems.

“Tax reform is set to remain an important topic for governments around the world for some years to come, and this will include the need to take on board the proposals from the Organisation for Economic Co-operation and Development (‘OECD’) to modernise the international tax system to cater for today’s globalised business.”

South Africa’s total tax rate saw a further decline in 2013, falling from 30.1% to 28.8%. Overall, South Africa’s worldwide paying tax ranking dropped from 24th position to 19. Kyle Mandy, PwC Head of National Tax Technical, says: “Both the fall in the total tax rate and the improved ranking can largely be attributed to the changes made in the Paying Taxes methodology, rather than tax reforms. These changes have been made in response to calls for the data to remain current, to take into account the potential for differences in the tax systems across the larger economies in the study, and to more closely reflect the improvements that are made when implementing reform.

The report shows that the average Total Tax Rate across African economies has dropped by 6.3 percentage points. Africa now has the second highest tax cost of the regions (46.6%) with South America having the highest average rate (55.4%).The African Total Tax Rate has been falling consistently since its peak of 72.2% in 2005. The replacement of cascading sales taxes in The Gambia with VAT caused the most significant movement in the Total Tax Rate in 2013. The average Total Tax Rate for Africa is, however, still affected by the cascading sales tax in Comoros.

The Total Tax Rate measures the burden of all the taxes that a company must pay in relation to its commercial profit. Therefore all kinds of taxes that impose a cost on the business are considered, such as property taxes, labour taxes, and other payments that do not require filing, such as dividend tax, capital gains tax, environmental tax, financial transaction tax, and vehicle and road tax. The study uses a standardised company to measure the taxes and contributions paid by a company in each of the countries forming part of the study, allowing for comparisons across countries.

The purpose of the study is to provide analytical data to facilitate the debate on tax policy and tax administration and encourage tax reform.

The average time to comply in the African region is 317 hours, which is well above the world average and the second highest of any region. Consumption taxes take the longest to comply within the region – 125 hours on average.

The average number of payments for the region at 36.2 is well above the world average (25.9) and the highest of any region. The majority of payments relate to ‘other’ taxes and labour taxes and mandatory contributions.

Although Africa has made some progress around tax reform, it is the lack of electronic filing in the region which contributes mostly to the difficulty in paying taxes. Only 9% of the economies in Africa have already implemented electronic systems for filing and paying taxes that are used by the majority of companies. This is the lowest level of implementation of electronic systems across the regions. Some African economies have electronic systems available, but they are either not used by the majority of companies or the systems do not cover both online filing and payment of taxes.

“An electronic system that is well implemented can be of benefit to both tax authorities and taxpayers. For tax authorities, electronic filing lightens workloads and reduces operational costs.

“For taxpayers, electronic filing reduces the time and cost required to comply with tax obligations and eliminates the need to wait in the line at the tax office. It can also lead to a lower rate of errors,” adds Mandy. Electronic systems for filing and paying taxes have become common worldwide, with 43% of economies now having electronic filing and payment systems in place.

The time taken for companies to comply with their tax obligation in South Africa (200 hours) has declined significantly since electronic filing was introduced more than a decade ago. Since then, a number of improvements have been made to streamline the tax system, including a reduction in the amount of information to be submitted with a corporate tax return.

South Africa’s tax system continues to be ranked number one among the BRICS economies (Brazil, Russia, India, China and South Africa) in terms of its efficiency and easing the compliance burden for taxpayers.

The top reformer for the third consecutive year was the United Arab Emirates where the time to comply is the lowest. The highest number of hours to comply is still taken by Brazil where it takes 2,600 hours, or more than a year for a full time person, with more than half of this time being spent on consumption taxes. The lowest Total Tax Rate is found in Macedonia FYR with most of its 7.4% generated by profit taxes. The highest Total Tax Rate in 2013 is found in Comoros at 216.5% due to the cascading sales tax.

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