By Julius Businge
A recent report released by the World Bank, IFC, and PwC finds that governments continue to reform their tax systems despite global economic uncertainty, with 31 economies having taken steps from June last year through May 2012 to make it easier and cost less for small and medium businesses to pay taxes.
The report –Paying Taxes 2013 looks at tax regimes in 185 economies and finds that the most common tax reform is the introduction or improvement of online systems for tax compliance, which occurred in 16 economies.
“Electronic filing and payment reduces paperwork and complexity in tax systems and can help increase tax compliance and reduce the cost of tax administration,” said Augusto Lopez Claros, director, Global Indicators and Analysis for the World Bank Group.
The report finds that over the last several years there has been a gradual reduction in the number of payments and in the number of hours spent by a medium-sized company to comply with its tax obligations.
The report finds that on average a medium company pays a Total Tax Rate of 44.7% of profits, making 27.2 payments, and spending 267 hours to comply with its tax requirements. In the eight years since the study began, the time to comply has fallen by 54 hours, almost seven working days, and the number of payments has declined by more than six, while the Total Tax Rate has fallen nearly 1% for each year.
“We are seeing tension between the need for governments to raise tax revenue and at the same time provide a system that encourages economic activity and growth,” said Andrew Packman, a tax partner at PwC UK, adding that governments seeking to create a more business-friendly tax climate need to focus not only on rates, but also on minimising the time and effort needed to comply.