Paying taxes: The compliance burden

This study looks at how different tax administration practice around the world can impact the tax compliance burden for business. As part of the Paying Taxes project, tax experts from 183 economies were asked to answer a series of questions relating to their local tax administration system and how it’s implemented. We also spoke to a small number of experts around the world, from both the public and private sector. Their insights into best practices in tax administration are also included in this report and captured as a series of videos.

The study covers a range of aspects of tax administration – from the complexity of tax rules, to the paperwork needed, the approach of tax authorities and what happens in a tax audit. The results clearly show that different approaches used by governments can play a key role in lowering or raising the tax compliance burden for business.

Key findings

Complicated or ambiguous tax rules increase the compliance burden for business

Complicated or ambiguous tax rules increase the compliance burden for business The compliance time for business increases by an average of 39% in economies where the tax rules are considered to be complicated, or very complicated.

Complexity increases where different levels of government can levy taxes

Complexity increases where different levels of government can levy taxes Decentralised tax systems, where taxes can also be levied at the regional or local level, increase the complexity and the compliance burden for business.

The average time to comply increases by 27% with two levels of government, and by 48% with three levels.

The compliance burden increases where taxpayers have to deal with different tax authorities for different taxes

The compliance burden increases where taxpayers have to deal with different tax authorities for different taxes

The compliance burden increases where taxpayers have to deal with different tax authorities for different taxes
Where VAT is dealt with by a different tax authority to corporate income tax, the average compliance time rises by 31%.

VAT and corporate income tax are governed by the same tax authority in 70% of economies.

However, in most economies (67%), there is a separate authority for social security contributions and the compliance time increases by 30% in these economies.

Effective electronic systems for filing and paying taxes lighten the compliance burden, bringing efficiency benefits for both business and government.

Effective electronic systems for filing and paying taxes lighten the compliance burden, bringing efficiency benefits for both business and government. Where business is able to use effective online systems, the compliance burden is lighter.

For a sample group of economies with electronic filing systems, VAT compliance time reduced by 30%.

Tax audits can be the most difficult interaction that business has with the tax authorities

Tax audits can be the most difficult interaction that business has with the tax authorities When asked how easy is it for a company to deal with a tax audit, contributors in 61% of economies said it was ‘difficult’ or ‘very difficult’.

Dealing with tax audits and disputes, and the approach of the tax authorities are the features of the tax system that business would most like to change

Dealing with tax audits and disputes, and the approach of the tax authorities are the features of the tax system that business would most like to change The way in which tax audits are dealt with was cited as an area for improvement by contributors in 79% of economies.

Contributors in only 21% of economies rated this as a good or the best aspect of their tax system. For the approach of the tax authorities, the figures were 66% and 33% respectively.