The use of technology, by business and government, in tax compliance is driving continued simplification and reduction in the burden of tax compliance on businesses, says the latest edition of Paying Taxes 2018, a report by The World Bank Group and PwC.
The report finds that the time to comply declined by 5 hours to 240 hours; and the number of payments by one to 24 payments. On the post-filing index, in 81 economies a corporate income tax audit is triggered by taxpayers voluntarily amending a return for a simple error while in 51 of the economies with a VAT system, no VAT refund is available for our case study company, suggesting that there is significant room for improvement in post-filing processes in many economies.
The Total Tax and Contribution Rate (TTCR) increased by 0.1 percentage points, to 40.5%; with the largest increases resulting from corporate income taxes and turnover taxes.
On the other hand, the Middle East region continues to have the lowest TTCR and time to comply, reflecting the relatively few taxes levied on the case study company and a reliance on other sources of government revenues. The report also finds that the average Total Tax and Contribution Rate is 24.0% in the Middle East region; and it takes the company an average of 154 hours to comply with its tax obligations, a fall of three hours from last year and it makes an average of 17.2 payments.
The Paying Taxes 2018 report examines the ease of paying taxes in 190 economies. The report models business taxation in each economy using a medium-sized domestic case study company.
Both the time and number of payments needed to comply have continued to fall significantly, reflecting the increasing use of technology. Time needed to comply with labour and profit taxes fell by 2 hours (to 61 hours for profit taxes and 87 hours for labour taxes), compared to last year, with labour taxes showing the greatest reduction over the life of the study (since Doing Business 2006). Electronic filing and payment, improved tax and accounting software and pre-populated returns are amongst the key drivers.
The number of tax payments made has fallen by around one payment for the second year in a row, driven largely by increased on-line filing and payments capabilities, new web portals and the greater use by taxpayers of online systems.
Despite sizeable changes in the global average results, many economies, particularly in the lower income range, have been slower to take full advantage of the benefits of technology. The study also notes an increase in the use of real, or near real time information systems by tax authorities to track transactions, for example in Russia, the Republic of Korea and China.
Real time data is giving tax authorities the opportunity to scrutinize transactions on a near real-time basis rather than relying on reviews of annual tax returns. New real-time systems may add to compliance times as they are first implemented, but they have the potential to lead to fewer audits or to faster VAT refunds in the future.
The post-filing processes for value-added tax (VAT) and corporate income tax (CIT) returns, which are considered in the study for the second year, can be amongst the most challenging and lengthy processes for businesses to comply with. In some cases, the length of the processes can create cash flow and administrative delays for companies of more than a year.
The report finds that 162 economies have a VAT system, with a VAT refund available to the case study company in 107 economies. There is no VAT refund available in 51 economies, particularly in South America and Africa.
In four economies, the purchase of an industrial machine is exempted from VAT. The EU performs the best for speed of VAT refunds (and corporate income tax processes), whereas it is a mixed picture for Central America and Middle East, and Asia Pacific, with Africa and South America lagging behind.
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