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Insights on tax administration

As well as collecting data for the three key Paying Taxes indicators, the contributors to Paying Taxes were asked to provide additional non-compulsory data, not used in calculating the indicators but which could provide useful insights into tax systems. Our purpose in highlighting this additional data is to seek views on its usefulness and whether the process for requesting and checking this data should be extended next year.

The questions asked and some insights on the responses we received are given in each of the sections shown below.




 
 
 
 
 
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How many tax authorities are there in your country?

Includes the number of tax authorities at each level: federal, state, municipal/county and the number of states and municipalities.

(99% of the economies responded to this question).

Where there is more than one tax authority and particularly where there is more than one level of tax authority, (i.e. federal, state and local) the rules and regulations governing the various taxes across a number of different taxing levels will inevitably mean that companies have to deal with increased complexity. This will be in terms of the volume of returns that have to be submitted, and the number of payments that have to be made. The simple case study company operates in a single location and does not normally need to consider these additional complexities, but for many companies they will be a reality.

As an example of multiple levels of tax administration, Brazil has a Federal taxing authority and 27 states with tax raising powers, as well as over 5000 tax-raising municipalities. By contrast, in the UK there is one national tax authority responsible for most taxes.

 
 
 
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Do you find your tax laws ambiguous?

(82% of economies responded to this question).

Ambiguity in a tax system can increase the perception of complexity and uncertainty. Over 50% of contributors to the Paying Taxes study report that they see their tax laws as ambiguous. The chart to the right gives the regional analysis of the responses.

It might be expected that ambiguity in the tax system translates into a higher ranking on the Paying Taxes hours indicator, as more time is required to prepare computations where the legislation is unclear. That is true to a degree. However it should be stressed that the Paying Taxes case study company has relatively simple tax affairs. In addition, the time to comply indicator does not include time spent in dealing with tax authority queries or disputes. There is the potential for lengthy subsequent dialogue with tax authorities in order to agree the tax position where there is a difference of opinion. This all adds up to uncertainty for the business taxpayer.

 
 
 
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Is social security separate from the tax authority?

(83% of economies responded to this question).

Labour taxes and social security contributions are often dealt with by separate government authorities. The chart to the right shows that that it is very common for social security to be administered by a separate authority - particularly in the African Union, Latin America and the Caribbean and in ASEAN. Within the G8 and EU it is a little more common to have the same authority, but still the majority of countries have to interact with a separate authority.

 
 
 
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How are companies selected for a tax audit (by the fiscal authorities)?

(83% of economies responded to this question).

The way in which companies are selected for a tax audit, and the subsequent way in which the audit is conducted, can be a source of concern for companies and can add to the perception of complexity. Over 50% of contributors to the Paying Taxes study report that they see their tax laws as ambiguous. The responses to this question provide a useful starting point in assessing how the tone and stance of the tax authority will impact. The chart below shows the wide range of responses to the question.

 
 
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Do governments publish information on tax revenues?

(62% of economies responded to this question).

Transparency around the taxes collected by government and broader government fiscal strategy can assist with securing the trust of business. 26 contributors reported that such information is not available, As shown in the pie chart, this included two ASEAN countries.

There is a growing recognition by business that what a company pays in taxes is not just a cost but also an investment in the country in which it operates. Business recognises the need to contribute through taxes (or sometimes more directly) to the infrastructure and the well-being of the population at large. Understanding government policy on tax and how tax revenues are spent is also therefore important for business, so that companies can see where their contributions are going. Part of the effective contract between business and government should be that government provides clear and transparent information about tax revenues and public spending to enhance trust and confidence in the system.