Tax and how tax systems operate has moved firmly up the agenda not only for governments, business and the media, but also for the general public. The Paying Taxes indicator provides robust information which enables tax systems around the world to be benchmarked. In doing so it provides a tool which assesses how easy governments make it for companies to pay their taxes and so can help to encourage reform and improvement especially around reducing the administrative burden of paying taxes and making compliance easier and more efficient for all.
But governments, particularly in the developing world, need assistance to make these reforms and to build effective, efficient tax systems. The private sector has the potential to offer this assistance and to play a much greater role in the worldwide development of strong tax systems; to do more than just paying its taxes. The private sector has access to resources, expertise and networks that can make a valuable contribution to the development of tax systems and the effective collection of tax revenues, but for this to happen there needs to be an appetite to offer such assistance and an acceptance by other stakeholders that such help is appropriate.
In this article we explore some aspects of corporate social responsibility and the role it can play in tax system reform. We identify the main barriers to effective cooperation in this area and some of the approaches to overcoming these barriers. This is based on international literature and insights gleaned from a series of interviews conducted with experts from multinational corporations, international financial institutions, tax authorities and non-governmental organisations (NGOs) during 2016.
Corporate income tax as a percentage of governments’ tax revenues is continuing to fall at the same time as tax revenues from indirect taxes such as value-added tax (VAT) are increasing. This reflects a global trend of governments focusing on the certainty of revenues from VAT and using indirect taxation to achieve objectives beyond just raising tax revenue.
The number of countries around the world with a VAT system is increasing. VAT in the OECD countries now accounts for around 20% of total tax revenues, a 70% greater share than in the mid-eighties.
Comparing VAT systems across the world shows that there is a clear tension between the need to reduce the possibility of non-compliance and ensuring that the burden of administration on taxpayers does not impair businesses’ competitiveness. There is some evidence to suggest that more recently implemented VAT systems in OECD countries have higher levels of compliance. This is because a single VAT rate is used with a broader VAT base with few exemptions. More research is needed to explore this further.
Technology is playing an increasingly important role in the creation of efficient indirect tax systems and in improving their effectiveness by reducing the cost and administrative burden for both taxpayers and tax authorities. Examples of this will be seen next year in India where they will introduce a new goods and services tax and in Spain which will increase the use of ‘real time’ VAT reporting.
Post-filing interactions with tax authorities for VAT can complicate the compliance process and increase costs for business.