Downturn hasn’t stopped government taxi reforms

Despite the economic downturn, government focus around the world has remained on tax reform, concludes a new report released today by the World Bank Group and PricewaterhouseCoopers. The report, Paying Taxes 2010, shows that tax authorities worldwide (including Africa) continue to overhaul tax systems by reducing taxes, streamlining administrative processes and modernising payment systems.

Despite the economic downturn, government focus around the world has remained on tax reform, concludes a new report released today by the World Bank Group and PricewaterhouseCoopers. The report, Paying Taxes 2010, shows that tax authorities worldwide (including Africa) continue to overhaul tax systems by reducing taxes, streamlining administrative processes and modernising payment systems.

This report measures the ease of paying taxes across 183 economies by assessing the administrative burden for companies to comply with tax regulations, and also by calculating companies’ total tax liability as a percentage of pre-tax profits. It uses the methodology of the PwC Total Tax Contribution Framework, which is designed to help companies identify and measure all the taxes that they pay, either in a particular country, or on a global basis.

Companies around the world are increasingly using the framework, both to communicate data around the taxes contributed by companies to national treasuries and to assist with the management of risk for all taxes. The report also included additional questions which are not used in calculating the indicators, but which nevertheless provide useful insights into tax systems. For example, contributors to the study identified the way in which tax audits are dealt with and the approach of the tax authorities in dealing with businesses as the elements of the tax system in most need of improvement. In the past five years, the report has recorded 171 reforms affecting taxes in 104 economies worldwide.

The 2010 report found that 45 economies made it easier to pay taxes, almost 25 percent more than in the previous year. This year’s top reformer, Timor-Leste, introduced a new tax law, streamlined the business tax regime and simplified tax administration. For the third year in a row, Eastern Europe and Central Asia had the largest number of reforms, with 10 economies reforming.

Government efforts to streamline tax procedures and reduce time spent on compliance can make an important difference for small and medium enterprises, especially in difficult economic times. This year’s top reformer reduced compliance time by over 50 percent by rationalizing tax regulations, simplifying computation rules, and reducing payments.

While 20 economies have reduced corporate income tax rates, 18 simplified the process of paying taxes. On average across all of the 183 economies covered in the report, the standard case study company (a small to medium-size manufacturer and retailer, deliberately chosen to ensure that its business can be identified with and compared worldwide) has to make 31 tax payments and spend 286 hours on calculating and paying its taxes.

The results show that corporate income tax is just one of the taxes with which business must comply. On average, the company pays 9.5 different taxes and corporate income tax accounts for only 12 percent of payments, 26 percent of the time to comply, and 38 percent of the tax cost.

In the African Union, the average time to comply with tax affairs of 307 hours is close to the world average of 286. However, the range of hours across this group is large ranging from 76 in the Seychelles to 1,400 in Cameroon. In terms of overall ease of paying taxes, the top three places are held as in the prior year by Mauritius, Botswana and South Africa – who both this year and last year came within the top 25 globally. In total only 8 AU countries came within the top quartile globally, whereas 21 came within the bottom quartile. Particularly pertinent points for Africa are the question of timeliness of refunds and of the effectiveness of independent appeal processes.

How long it takes for a taxpayer to receive a refund could be seen as one useful test of the efficiency of tax authorities. This is also important for business in view of the impact on corporate liquidity and the time value of money on delayed refund processing. On the question of how effective is the independent appeal process, 18 out of the 50 AU countries in the survey ranked the process as inefficient or very inefficient.

The writer is a Tax Partner , PricewaterhouseCoopers, Kampala.
francis.kamulegeya@ug.pwc.com