10 December 2018
Tax authorities could do more to realise the full potential of new technology to reduce the tax compliance burdens on taxpayers, according to the 2019 edition of the annual Paying Taxes report, produced by PwC and The World Bank Group.
The report has found that the global average results for the compliance burden for business taxation are almost unchanged across four key measures: time to comply (237 hours); number of payments (23.8); Total Tax and Contribution Rate, or TTCR (40.4%) and Post-Filing index (59.6 out of 100).
In comparison with other Baltic countries, in 2017 Latvia had the lowest total tax and contribution rate - 36%, in Lithuania the rate was 42.6%, and in Estonia - 48.7%. Unfortunately, in Latvia companies need to spend the longest time period to comply, which has not changed significantly and takes 169 hours, in Lithuania - 99 hours, while in Estonia only 50.
Paying Taxes 2019 draws upon a comparison of the taxation of business in 190 economies. The report models business taxation in each economy using a medium-sized domestic case study company.
Agate Zīverte, senior manager of Tax at PwC in Latvia said:
“This report highlights the extent to which, when implemented strategically, new technology can drive considerable efficiencies for tax authorities and businesses alike. Yet it is also important to remember that improvements to tax systems do not come from technology alone. Simple, coherent, well understood and properly administered tax systems can help to lower the barriers for businesses to move from the informal to the formal sector. This can broaden the tax base and raise revenue without requiring new taxes. To do so, tax professionals and policy-makers need to have access to the correct skills and insight, which technology gains can help to support.”
Some advanced economies have continued to improve their systems to the benefit of both taxpayers and tax authorities, recording significant decreases in the time it takes to prepare, file and pay taxes and in the number of payments indicator.
The fact that there has been little change to the global average, despite 113 economies introducing tax reforms over the same period, suggests reforms are limited in nature (the report does not include the US tax reforms introduced in 2018 due to data cut-off date for this edition of the Paying Taxes report). It also highlights that implementing new technologies for tax compliance can increase the administrative burden, at least in the short term, and that such implementation requires careful planning and consultation.
While many economies have made considerable improvements in their tax systems in recent years, the findings also suggest that some economies are finding it difficult to implement online filing and payment due to the lack of IT infrastructure, cultural barriers and complex legislation.
Overall, the findings of Paying Taxes 2019 support trends that have been present since the survey began in 2004:
The average time to comply has fallen by 84 hours and the average number of payments by 10.3 since 2004 - both driven by technology
In 2017, profit tax TTCR fell in 58 economies and increased in 37, conversely labour tax TTCR fell in 17 economies and increased in 39. This trend of more economies with reductions in the profit tax component of TTCRs and increases in the labour tax component of TTCRs has been seen every year since 2005
On average, a VAT refund takes 19.2 weeks in high income economies but over twice as long in low income ones (44 weeks).
Improving tax officers’ skills is vital if a well-functioning tax system is to be sustained. 97% of economies offer training to tax officers, but, only 35% of economies provide regular training.
Rita Ramalho from the World Bank Group said:
“Technology is transforming the nature of jobs that are available and the skills needed to do them. This in turn is likely to require greater investment in human capital, especially in learning and development. It is therefore vital that governments are able to understand the challenges ahead and how they can build resilience for public finances in the long term. We hope that this report will be of value to all those interested in making tax systems more efficient, whether in government, business, academia or civil society.”
The Paying Taxes indicator measures tax systems from the point of view of a domestic company complying with the different tax laws and regulations in 190 economies around the world. The case-study company is a small to medium-size manufacturer and retailer with specific assumptions, deliberately chosen to ensure that its business can be compared worldwide on a like-for-like basis.
Paying Taxes has historically measured the total tax and contribution rate (the cost of all taxes borne, as a percentage of commercial profit), the time it takes to comply with major taxes (profit taxes, labour taxes and mandatory contributions, and consumption taxes), and the number of tax payments.
Find the full report: at pwc.com/payingtaxes
The study has been conducted on a long-term basis on the same principles that make it possible to draw conclusions about global tax reforms, both historically and in terms of national competition.
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