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Paying Taxes 2020: Technology significantly simplifies the payment of taxes around the world, Slovakia drops down ranking

28/11/19

 
The most successful EU countries are: Ireland, Denmark, and Finland (in the TOP 10) and Estonia, Lithuania, and Latvia (ranked between 10 and 20). Firms in Estonia need 50 hours to comply with their tax obligations; in Slovakia, this figure is 192 hours. Slovakia has the 4th highest total tax and contribution rate in the EU & EFTA, after France, Belgium, and Italy.

 


Washington, Bratislava, 28 November 2019
– According to the 14th edition of Paying Taxes for 2020, compiled by the World Bank Group and PwC, the administrative burden for the administration and collection of taxes depends on reforms and implemented technology used by the state and companies. For most countries, the biggest challenges include the total tax and contribution rate (“TTCR”), implementation of new technology, and post-filing procedures applied by tax authorities, which may withhold the return of tax overpayments. The study examines the ease of paying taxes in 190 countries for a medium-sized, locally-owned model company and legislation applicable in each country at the end of 2018.

The ranking is compiled on the basis of four parameters (figures in brackets are the global average):

  • TTCR (40.5%);
  • total time to comply with taxes and contributions (234 hours);
  • number of payments (23.1); and
  • the post-filing index (60.9/100), which reflects the complexity of processes after filing a tax return.

Since 2012, the average time to comply with tax obligations has dropped globally by 27 hours and the average number of payments has decreased by 4.4, due to the implementation of new technologies. In the same period, the TTCR dropped globally to 40.5% (2012: 41.9%). The post-filing index, introduced in 2014, has increased globally to 60.9 this year from 58.9 five years ago.
 


The U.S., China, Gambia, Morocco, and Romania saw a significant decrease in their TTCRs. The number of payments decreased most in Ivory Coast and Kyrgyzstan from 63 to 25, and in Israel from 28 to 6. Total time to comply with tax and contribution duties dropped most in Brazil and Vietnam.


Overview of Paying Taxes 2020 results* – Slovakia/EU & EFTA/global average

  TTCR
(%)

Time to comply
(hours)

Number
of payments

Post-filing
index

Slovakia

49.7 

192

8

87.2

EU & EFTA

 38.9 

161

10.9

83.1

World – 190 countries

40.5 

234

23.1

60.9

* Paying Taxes 2020 is based on legislation applicable at 31 December 2018
 

V4 countries lag far behind the successful Baltic countries, TTCR in Romania dropped from 40% to 20%

In this year’s edition of the Paying Taxes study, Slovakia ranked 55th, a year-on-year fall by seven places in the overall evaluation of tax payment systems, even though all parameters remained the same in Slovakia, as other countries around the world are rapidly moving forward. Slovakia fell in the ranking mainly because it has the 6th highest TTCR (49.7%) in the EU and EFTA (average 38.3%). The difference of 11.4% is significantly higher than the average for all 190 countries included in the study (40.5%). Slovakia also has the 4th highest TTCR in the EU and EFTA, after France, Belgium, and Italy.

The Czech Republic fell from 45th to 53rd and is also falling behind in individual parameters. Poland dropped from 69th to 77th. Hungary was the only V4 country to move up – fom 86th to 56th thanks to an increase in the post-filing index from 63.9 to 87.5 and a slight reduction in the TTCR from 40.3% to 37.9%. Poland and Hungary have long held negative records – a very high number of hours required to comply with tax and contribution obligations – 334 and 277 hours, respectively, which are, together with Bulgaria’s 441 hours, the highest in the EU and EFTA. In Romania, the TTCR fell from 40% to 20%, mostly due to labour taxation – six employers’ taxes and contributions have been abolished. At present, employers only pay labour insurance at 2.25%, while the total burden of employees for social insurance contributions has gone up from 16.5% to 35% of the gross salary.

The Baltic countries have the best post-filing index in CEE

The study applies the post-filing index, which uses four sub-indicators – time to comply with a VAT refund (hours), time to obtain a VAT refund (weeks), time to comply with the correction of an unintended error in a CIT return, including time to comply with a CIT audit (hours), and time to complete a CIT audit, if applicable (weeks).

In addition to the Baltic countries and Georgia, countries like Azerbaijan, North Macedonia, Moldavia, Slovenia, and Kosovo were also ranked better than the V4 countries.

Paying Taxes 2020* – V4 and Baltic countries

  TTCR
(%)
Time to comply
(hours)

Number of payments

Post-filing
index

Overall ranking

Slovakia 

49.7

192

8

87.2

55

Czech Republic

 46.1

230

8

90.5

53

Poland

40.8

334

7

76.4

77

Hungary

37.9

277

11

63.9

86

Estonia

47.8

50

8

99.4

12

Latvia 38.1 169 7 98.1 16
Lithuania 42.6 95 10 97.5 18

Romania

20  163 14 76.8 32

* Paying Taxes 2020 is based on legislation applicable at 31 December 2018



 

 

Christiana Serugová, Tax Partner and Leader at PwC Slovakia, commented on Slovakia’s ranking

What legislative measures and changes could help Slovakia improve its ranking?

“Slovakia’s ranking is not improving. We should draw inspiration from the Baltic countries, which were catapulted to the top of the ranking thanks to reforms and electronic tax administration. In addition, Slovakia’s position in the Paying Taxes ranking, and also as regards competitiveness, has long been adversely affected by the fact that the tax and contribution burden is spread very disproportionately between labour tax and CIT. The labour-related tax and contribution rate totals 39.7%, CIT 9.1%, and other taxes 0.9% of the total tax and contribution burden of 49.7%. This means the tax burden is distributed very unevenly between the taxation of labour and corporate profit, with these two components comprising 98% of the total tax and contribution burden. Therefore, Slovakia’s tax ranking could be improved by reducing the TTCR on labour and simplifying the tax system. Legislative changes which increased the maximum thresholds for social security contributions would certainly not improve Slovakia’s position compared to its immediate neighbours, or the EU. It is concerning that Slovakia has slipped down the ranking, as other countries such as Georgia, Azerbaijan, Macedonia, and Moldavia have addressed tax administration and tax system reforms intensively and, as a result, have moved far ahead of us.”

 

Slovakia’s overall Paying Taxes ranking – history

Slovakia

Overall ranking

Paying Taxes 2020

 55 

Paying Taxes 2019

48

Paying Taxes 2018

49

Paying Taxes 2017 56

* Paying Taxes 2020 is based on legislation applicable at 31 December 2018



Total Tax and Contribution Rate (TTCR)

Total Tax and Contribution Rate (TTCR)

Slovakia

TTCR

CIT

Labour
tax

Other taxes

Paying Taxes 2020

49.7 

9.1 39.7  0.9
Paying Taxes 2019

49.7 

9.1 39.7 0.9
Paying Taxes 2018

51.6 

10.5 39.7 1.4 
Paying Taxes 2017 51.2  10.5  39.7  1.4

* Paying Taxes 2020 is based on legislation applicable at 31 December 2018

Among the older EU countries, Ireland, Denmark, and Finland achieved the best assessment for the administration and collection of taxes, with the lowest TTCRs and a high score for the post-filing index. Luxembourg, Ireland, Norway, and Finland were best ranked for the number of hours needed to comply with tax and contribution obligations. Further down the table, Italy ranked 128th, and together with Albania and Bosna-Herzegovina, they were the only European countries ranked below 100. Bulgaria, Poland, Hungary, France, Belgium, and Greece ranked between 50 and 100. This year, Slovakia and the Czech Republic also dropped down to this group.

The total labour-related tax and contribution burden paid by employers was again, on average, the highest in the TTCR in the EU and EFTA (65%), and this region also had the highest percentage of time required to comply with tax and contribution obligations (46%), although the number of payments (24%) was low.

“The results of this study show that it is very important for governments and tax authorities to continue investing in the modernization of their tax administration systems. All governments will also have to understand the consequences of each new consensus that appears in connection with the current OECD and G20 work as regards taxing the digital economy,” said Andrew Packman, Total Tax Contribution and Tax Transparency leader, PwC UK.

 

Notes for the editor

1.     The Paying Taxes study is part of the Doing Business project which uses a model company. The model company is a medium-sized, local manufacturing/retail firm chosen so that firms all over the world can identify with its business. A standard sample of facts is selected, so that the generated tax indicators can be compared in different economies without distortion due to incentives or relief for specific industries. It is a simple local business selected to enable the key results to be based exclusively on the local tax system.

2.    The Paying Taxes 2020 collects information about all taxes and contributions that a medium-sized firm must pay in a given year and the administrative burden due to administration and payment of taxes and post-filing procedures. Taxes and contributions include the tax on commercial profits (in Slovakia – CIT), social insurance contributions and labour taxes paid by the employer, property taxes, property transfer tax, dividend tax, capital gain tax, financial transactions tax, waste disposal tax, vehicle and road taxes, and other small taxes and fees.

3.    The Paying Taxes study includes the post-filing index which measures processes that must be undertaken after complying with the tax requirements, e.g. when claiming a VAT refund. The post-filing index measures two procedures that may follow after tax compliance – VAT refund and correction of errors in CIT returns, including a resulting potential tax audit. For more information, see: www.pwc.com/payingtaxes.

4.    Paying Taxes 2020 was compiled from June 2018 to June 2019 and is based on legislation applicable at 31 December 2018. For more information on Paying Taxes, see: www.pwc.com/payingtaxes.

5.    The annual Paying Taxes report is based on information included in Doing Business compiled by the World Bank Group, Chapter – Paying Taxes. For more information on Doing Business, see: www.doingbusiness.org.

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We are a network of firms in 157 countries with more than 276,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/sk.

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About the World Bank Group

The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. Its five institutions (The International Bank for Reconstruction and Development (IBRD), The International Development Association (IDA), The International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA), and The International Centre for Settlement of Investment Disputes (ICSID)) share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development. With 189 member countries and offices in over 130 locations, these institutions work together to provide funding, political advice, technical assistance, insurance, political risk mitigation, and settlement of disputes with private enterprises, enabling countries to achieve sustainable development. For more information, please see: www.worldbank.org, www.miga.org, and www.ifc.org.

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Christiana Serugová

Christiana Serugová

CEE TLS Lead Relationship Partner, PwC Slovakia

Tel: +421 903 261 010

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Tel: +421 904 941 500

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