Paying Taxes, The Easy Way

Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.

This article appeared in the November 11, 2008 issue of the Bangkok Post.

By Thavorn Rujivanarom

A new report launched today by the World Bank, IFC and PricewaterhouseCoopers shows that tax authorities worldwide are overhauling tax systems by reducing taxes, streamlining administrative processes and modernising payment systems. Paying Taxes 2009 , the third report in an annual series, is expected to prompt further dialogue between governments and businesses on improving tax systems. Corporate income tax reforms implemented in the past had positive impact for both governments and businesses in a number of economies, and helped governments to realise that tax reform should include all business taxes, not just corporate income tax.

The report draws upon the Doing Business 2009 report that measures the ease of paying taxes for mid-size domestic companies in 181 economies, analyses tax systems and tracks related reform efforts. Tax systems were rated by three main indicators namely the total tax rate across all taxes that businesses pay, the time it takes to comply with the major types of taxes and the number of tax payments a business makes annually. It includes examples of how 18 economies have made use of data from the previous global Doing Business reports and provides insight into discussions with governments and other stakeholders generated by earlier Paying Taxes reports.

Paying Taxes 2009 found a number of governments and companies were working together to make their systems as transparent and easy as possible. Notably, in the last 12 months a total of 36 countries made it easier to pay taxes. The Dominican Republic was the top reformer this year having lowered the corporate income tax from 30% to 25%, eliminated several taxes including stamp duty, reduced the property transfer tax, and implemented an online filing and payment system. Thailand’s southern neighbour Malaysia gained second place. Reduction of corporate income tax rates was also a high priority, with 21 economies reforming their current rates.

The report found the average number of all business taxes varied by region, ranging from just over 8 on average in the Association of South East Asian Nations (ASEAN) economies to 12 in the fast growing developing economies of Brazil, Russia, India and China - BRIC. Within regions there were also wide variations, as seen in the EU where the number of taxes range from 5 in Sweden to 16 in Austria.

In East Asia and Pacific, five economies reformed. Aside from Malaysia, China made notable reforms, reducing the corporate income tax from 33.3% to 25% and unifying accounting methods and criteria for tax deductions and exemptions. Meanwhile, online filing became more prevalent. Thailand introduced corporate income tax exemptions for small companies, reduced the corporate income tax rate to 25% for newly listed companies, and reduced
several property taxes by sizeable rates. It also made online filing and payments easier. Samoa lowered its corporate income tax from 29% to 27% Mongolia reduced social security contributions paid by employers from 19% to 11% of gross salaries.

The report found that revenue authorities around the world have made great efforts to streamline administrative processes and modernise payment systems. In the past four years
Doing Business recorded 126 reforms aimed at reducing tax rates or the time or cost to comply with tax laws. The trend across all regions has been to lower the total tax rate paid by businesses. In 2004 the average total tax rate was 50.6 percent of commercial profits. By
2007 it had fallen to 49.3 percent. Meanwhile, the time to comply with tax laws dropped by 16 hours a year on average. About 50 percent of economies have implemented reforms making it easier to pay taxes in the past four years. Among regions, Eastern Europe and Central Asia has had the most reforms, followed by Africa. South Asia has had the fewest.

Introducing electronic filing has been a popular and effective way to make it easier to pay taxes. Businesses can enter financial information online and file it with one click – with no calculations and no interaction with tax officials. Errors can be identified instantly, and returns processed quickly. In Hong Kong businesses file an electronic corporate tax return and pay corporate income tax annually. Complying with tax requirements takes just 80 hours a
year. Sixty economies – from Azerbaijan to Colombia and Lesotho – have made e-filing possible, and the list is growing. These reforms can ease the administrative burden of paying taxes, but it can take time for them to make a real difference.

A positive response is expected for this year’s report across global markets. As it is a generally accepted belief that good and efficient tax systems produce better and more
responsible tax citizens, governments are seeing increasing pressure from the business sector to streamline and reduce tax systems and rates. Not only will each economy hope to benefit locally, the prospect can serve as an attractive incentive for foreign investors.

PricewaterhouseCoopers’ 10th annual Tax and Legal conference, “Road to Recovery-Maximize Shareholder Value through Effective Tax Planning 2009” takes place in Bangkok today.