Paying Taxes 2009: Paying taxes is getting easier but not enough

2 December 2008

Ukraine along with Belarus remain the two most difficult countries in which to pay taxes. “Globally it has become easier to pay taxes, and making it easier to pay tax will almost always increase government revenue and attract foreign investments. Although Ukraine has simplified the process significantly, the time it takes to comply with the legislation (often menial tasks) in many cases means that Ukraine (along with its neighbour Belarus) are rated the lowest overall in the 181 countries surveyed. It is not just the tax rate that is important, but the ease of compliance”, said Ron Barden, Partner of PricewaterhouseCoopers in Ukraine, commenting on a new report launched by the World Bank, IFC, and PricewaterhouseCoopers. Paying Taxes 2009, the third report in an annual series on tax systems, now covers 181 countries worldwide.

This year, 36 economies improved their business tax systems, and 100 have done so over the past three years. Dominican Republic was the top reformer and Malaysia was runner-up. While reducing corporate income tax was the most popular reform, implemented in 21 economies worldwide, many countries have reduced the compliance burden by simplifying or eliminating other business taxes. Eight economies, including Ukraine, reduced the number of taxes paid by businesses.

This year the top 10 economies for ease of paying taxes are, in order:

Maldives, Qatar, Hong Kong (China), United Arab Emirates, Singapore, Ireland, Saudi Arabia, Oman, Kuwait, and Kiribati. The 10 economies where it is most difficult are, from 171 to 181, Panama, Jamaica, Mauritania, the Gambia, Bolivia, Venezuela, the Central African Republic, the Republic of Congo, Ukraine, and Belarus.

“Though the Ukrainian corporate rate of 25% is not considered high the “hidden taxes” and the significant time it takes to comply with the rules keeps Ukraine at the bottom of the table. Although Ukraine’s ranking has decreased substantially, it should be easy to improve the rating going forward with several modifications to the syste m “, commented Ron Barden.

Complying with administrative tax requirements remains a real burden for business and this has a significant impact on the overall rating.

The study allows direct comparison of tax systems from around the world. It shows how businesses are affected not only by tax rates, but also by the procedural burden of compliance.

Compliance issues can significantly affect the overall ranking, either counteracting the benefit of a low tax rate or mitigating the impact of high tax rates. Scandinavian countries, while known for high taxes, do well on the ease of paying taxes because of a low compliance burden.

“It would be relatively easy for Ukraine to improve its rating. For example, combining all the social security payments on wages into one monthly payment will reduce the burden overnight. It would then be up to the government to allocate funds. Not only would this simplify the burden of paying these taxes, it would also reduce bank charges” said Ron Barden.

The findings demonstrate that when considering reform, governments need to look at all taxes paid by companies. Corporate income tax is just a portion of the story, accounting for only 37 percent of the total tax rate, 26 percent of the number of hours spent on tax compliance, and 12 percent of the number of tax payments. Labor taxes and contributions add significantly to the tax cost in some countries and also to the compliance obligations.

Notes to editor

For more information or a copy of the report, please visit: www.doingbusiness.org/taxes

or contact Natalia Blotskaya, Marketing and Communications Manager, PricewaterhouseCoopers Ukraine (+38) 044 490 67 77 or e-mail to natalia.blotskaya@ua.pwc.com

About Paying Taxes 2009

For information about Paying Taxes, visit www.doingbusiness.org/taxes. For information about IFC, the World Bank or PricewaterhouseCoopers, visit www.ifc.org, www.worldbank.org, or www.pwc.com.

About PricewaterhouseCoopers

PricewaterhouseCoopers provides industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. For more information, visit www.pwc.com.

About the Doing Business Project

Doing Business 2009 rankings are based on 10 indicators of business regulation that track the time and cost to meet government requirements in business start-up, operation, trade, taxation, and closure. The rankings do not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates. For more information, visit www.doingbusiness.org.

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