Key themes and findings

• All three key indicators (Total Tax Rate, time to comply, and number of payments) have fallen consistently over the eight -year period of the study, reflecting the reforms that governments have implemented to make paying taxes less burdensome.
• The two compliance indicators (number of hours to comply and number of payments) continue to fall significantly in the most recent year, suggesting that there is still room for improvement in many economies around the world, and that the value of these improvements are understood.
• The rate of reduction in the Total Tax Rate has slowed in the most recent year, reflecting governments’ need for policy flexibility in dealing with different economic scenarios, including the circumstances which have arisen in the wake of the economic downturn.
• The range of the indicators across the economies in the study is narrowing, suggesting a gradual move to what may be perceived as sustainable—and, perhaps, an awareness of companies’ ability, in an age of increasing globalisation, to compare rates with geographic neighbours and economic peers.

The study continues to show that corporate income tax is only part of the picture when looking at the contribution made by business to public finances. This is important for governments when considering the reforms which they may feel are necessary for the tax system.

For companies, the challenge is to have a better understanding of the full extent of their contribution to the economy.

• It is not surprising that the economies in the Middle East feature so prominently in the top jurisdictions of the Paying Taxes indicators. This can largely be attributed to the relatively few taxes levied on the case study company and a reliance on other sources of government revenues. The expectation is that this may change if new revenue raising measures are introduced.
• The economies in Central Asia & Eastern Europe have led the charge over the period of the study to improve their tax compliance procedures and also to reduce their tax rates.
• While the Total Tax Rates for Africa still appear to be high, if the three countries with cascading sales taxes are excluded, the average falls to a level which is just above the world average, leaving strong>South America as the region with the highest Total Tax Rates.
• South America is also the region which demonstrates the heaviest compliance burden in terms of the hours to comply. This is driven by a mix of complicated tax systems, regimes which have multiple levels of government and tax authorities, and where regular changes to the tax system are common.
• Economies in Central America & the Caribbean have shown the smallest fall in the time to comply apart from in the Middle East, and the smallest falls in the Total Tax Rate.
• The developed economies of Europe and North America have the most efficient tax systems but Total Tax Rates can be high, driven in many cases by numerous labour taxes and social contributions.
• The Asia Pacific economies tend to have Total Tax Rates that are below the world average and they have continued to fall as they look to compete in the world economy.

• A comparison of the Total Tax Rate indicator with GDP and FDI suggests that higher Total Tax Rates for business are associated with reduced ability for an economy to grow and attract inward investment.
• Comparing the compliance indicators for the time to comply and the number of payments with GDP suggests that a high level of administrative complexity in the tax system is associated with less economic growth, and to a greater degree than the tax cost. This is particularly the case in relation to the number of payments indicator, implying that a high number of taxes, and a lack of electronic filing and payment facilities are key reasons here.
• In economies where action was taken to reduce complexity in tax administration – both in terms of the number of payments and the time taken to deal with tax matters – there has been a positive change on economic growth.
• The economic analysis in comparing the Paying Taxes indicators with Gross Domestic Product (GDP) and Foreign Direct Investment (FDI) suggests that while higher business taxation can be linked to slower economic growth and international investment, reducing the administrative burden and complexity of the tax system can potentially be linked to a greater change in overall growth. The implication is that minimising the time and effort which businesses need to spend on complying with the tax system is equally important for governments when considering how best to stimulate and sustain economic growth.

For more information on the regression analysis undertaken by PwC’s senior economic adviser, Andrew Sentence and featured in this report, click here.