TORONTO, November 29, 2007 — While Canada ranks 99th out of 178 for its total tax rate and fares moderately well in ease of paying taxes and administering taxes, there is room for improvement in Canada’s corporate taxation system. The study from the World Bank and PricewaterhouseCoopers (PwC) Paying Taxes 2008: A global picture, concludes that there is a win-win opportunity for governments and firms, if governments simplify tax systems, ease the compliance cost on business and reduce tax rates.
The study allows direct comparison of tax systems from around the world. It shows how businesses are affected not only by tax rates, but also by the procedural burden of compliance. The report focuses on the number of tax payments made, the time it takes to comply, and the cost of taxes, which is measured by the total tax rate. The total tax rate (TTR) covers five types of taxes that firms pay: profit, social, property, turnover, and other taxes, such as municipal fees and fuel taxes. The steps, time, and cost indicators are used to determine the overall ease of paying taxes.
Canada’s ranking this year may seem a step backwards from its 2006 ranking of 77th out of 175. However, according to Tom O’Brien, a PwC Canada Tax Services partner, “Since this year's report has been written, there has been the elimination of the Canadian Federal Large Corporation Tax which represents a real savings for many corporations operating in Canada. And, with decreases in federal and some provincial corporate income tax rates announced for 2007 to 2010, and the harmonization of the Ontario and Canadian Corporate tax systems, Canada’s total tax rate ranking is expected to improve in the near future.”
The top-ranking countries with the lowest TTR are Vanatu, the Maldives and the United Arab Emirates. The highest are Sierra Leone, Burundi and Gambia. In comparison, the US lands at the 102ndspot and the United Kingdom at 52. Seven of the 10 countries in the world with the highest TTRs are African countries, and it is largely the impact of these seven countries, and the sales and turnover taxes, that drive the average TTR for the sub Saharan African countries to nearly 70% — the highest of any geographical grouping.
In terms of time to comply, Canada is 28th and 15th for number of payments. These results are a reflection of the overall efficiency of the Canadian tax system, which features a globally competitive revenue agency and incorporates technology such as the internet and electronic banking to increase the ease of remitting tax payments and complying with federal and provincial tax legislation. The ease of paying taxes can range from filing a single online form in Sweden to making 124 payments a year in Belarus. In fact, countries in the former Soviet and Eastern bloc account for six of the bottom 10 countries in terms of the number of tax payments a company has to make.
Four of the bottom 10 countries have a TTR above 100% of commercial profits. That means that a company with sales of 120% of cost of goods sold cannot make enough profit to pay all the business taxes. Seven of the bottom 10 countries have to pay taxes at least once a week and spend at least 65 days per year in the process.
O'Brien notes, “There is good news: paying taxes is now easier, especially in eastern Europe and central Asia, which had the most reforms in 2006-07. Revenues are growing as well. For example, the Czech Republic saw its tax revenue rise by 2% after reducing the corporate income tax between 2004 and 2005. This is part of a longer global trend — the tax burden on businesses has decreased every year since 1985.”
This year, 31 economies improved their business tax systems, and 65 have done so over the past three years. Bulgaria was the top reformer, and Turkey was runner-up.
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