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Key reforms to date

Economies that rank highly on the ease of paying taxes tend to have lower and less complex taxes with simple administrative processes for paying taxes and filing tax returns.

Thirty six economies made it easier to pay taxes. The most popular reform feature implemented iin 2007/08 was the reduction of the profit tax rate, which happened in no fewer, than 21 economies. The second most popular reform was the introduction of electronic filing, which was carried out in 12 economies. This reduced the frequency of payments and the time spent paying taxes and filing returns. Tax reform is not just about the introduction of tax rates; administrative aspects are almost equally important. Eight economies reduced the number of payments made by businesses by eliminating smaller taxes such as stamp duties. The top 10 reformers for paying taxes this year reduced the number of payments made by half.

Corporate income tax

As in previous years, the Doing Business analysis confirms that corporate income tax is only one of many taxes that business has to bear. It accounts for only 13 percent of payments, 26 percent of compliance time and 37 percent of the Total Tax Rate (TTR). As such, any reform agenda needs to look beyond corporate income tax.

Employment taxes

Companies make an important tax contribution as employers. For the purpose of the Paying Taxes data, social security contributions and labour taxes are included, as these can add significantly to the cost and compliance burden for business. Governments need to make it easy to comply with these taxes and contributions.

To the extent that the tax is borne by the employer (e.g. employer social security contributions), then it will be reflected in the Total Tax Rate. It will also impact on the number of hours to comply and the number of tax payments made.

Employment taxes overall account for 34 percent of the Total Tax Rate. They are a significant element of the tax cost for business. Europe continues to be a region where labour taxes are a particular feature.

Time spent on employment taxes can also be significant.

Nigeria: hours to comply with labour taxes

Consumption tax

It is often assumed that consumption taxes, and in particular sales taxes, are simply taxes collected on behalf of government and therefore have a minimal impact on business. However, some sales taxes can be a tax borne, and all sales and consumption taxes have a significant impact on the number of hours it takes to comply and the number of tax payments made. Therefore these taxes also need to be efficient.

The chart below shows that in the Latin America and Caribbean region, there are many economies where consumption taxes are a significant element of the hours spent on compliance.

Underlying data

It is important to look at the underlying data for each indicator as well as the overall and individual rankings.

The Paying Taxes results rank each economy on each indicator and these are combined to produce an overall ranking. Where reforms are made to a tax system, there is the potential for an improved ranking. However, in understanding the extent of the movement in the ranking, it is important to understand where the economy is situated in the distribution of the rankings.

The chart below shows that for each of the indicators, there is a 'clustering' of results with a large number of economies falling within a certain banding. For these economies, a small improvement in their results can result in a large movement up the rankings. For economies in a more sparsely populated part of the distribution, large improvements may result in moving only one or two places up the rankings.