Paying Taxes 2019: Baltic countries – ranking leaders in CEE, Slovakia no longer has leading position in the V4

Thanks to reforms, Latvia, Estonia, Georgia, and Lithuania are again ranked between 10 and 20. In the EU, Ireland, Denmark, and Finland are the most successful countries. Firms in Estonia need 50 hours to comply with their tax obligations. In Slovakia, this figure is much higher (192 hours) – but still the shortest time in the V4. Slovakia has the 10^th highest total tax and contribution rate in the EU & EFTA.

Washington, Bratislava, 20 November 2018 – According to the 13^th edition of Paying Taxes for 2019, compiled by the World Bank Group and PwC, the administrative burden for the administration and collection of taxes depends on reforms and technology used by the state and companies. For most countries, the biggest challenges include the total tax and contribution rate (hereafter the “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 2017. The ranking is compiled on the basis of four parameters – TTCR, total time to comply with tax and contribution duties, number of payments, and the post-filing index which reflects processes after filing a tax return.

Slovakia’s ranking has been adversely affected mainly by the 10^th highest TTCR in the EU and EFTA under legislation effective at the end of 2017 (49.7%), which is 10% higher than the EU and EFTA average of 39.3%, and even significantly higher than the average for all 190 countries participating in the study (40.4%).

*Paying Taxes 2019 is based on legislation applicable at 31 December 2017.

The Czech Republic has overtaken Slovakia and is best ranked in the V4, however, it remains far behind the Baltic countries

The Czech Republic moved from 53^rd to 45^th thanks to a reduction of the time needed to comply with tax and contribution obligations and a slight decrease in the TTCR. In this year’s edition of the Paying Taxes study, Slovakia ranked 48^th (a year-on-year improvement of 1 place in the overall tax payment system ranking) thanks to a decrease in the TTCR from 51.6% to 49.7%., i.e. by 1.9%. Poland fell 18 places to 69^th. Hungary moved up to 86^th from 93^rd, mainly due to a reduction in the TTCR from 46.5% to 40.5%. 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 the highest in the EU and EFTA. In Poland, the total number of hours increased year-on-year by 76 as a result of the introduction of new VAT reporting duties and a higher administrative burden for VAT recognition.

In addition to the Baltic countries, Georgia, Azerbaijan, Macedonia, Moldavia, Slovenia, and Kosovo were also ranked above Slovakia and the Czech Republic.

Hungary implemented the highest reduction in taxes and contributions in the EU and EFTA

Reforms to the tax and contribution burden were implemented in 24 of the 32 EU and EFTA countries. Hungary saw the biggest reduction of 6.1% to 40.3%, as the mandatory rate for social security contributions paid by employers dropped from 27% to 22% and the starting CIT rate was reduced from 10% to 9%. Italy recorded the biggest increase by 5.1% to 53.1% mainly due to the abolition of a social security exemption for the newly employed. This negative impact was partially mitigated by the reduction of the CIT rate from 27.5% to 24% and the increase of tax deductible costs to 40% for certain assets.

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 (in 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).

Overview of Paying Taxes 2019 results* – Slovakia/EU & EFTA/global average

*Paying Taxes 2019 is based on legislation applicable at 31 December 2017.

Total Tax and Contribution Rate (TTCR)

*Paying Taxes 2019 is based on legislation applicable at 31 December 2017.

In 2017, 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 Slovakia had the highest percentage of time required to comply with tax and contribution obligations (46%), although the number of payments (24%) was low.

Slovakia’s overall Paying Taxes ranking – history

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. Italy ranked 118^th, and together with Albania and Bosna-Herzegovina, they were the only European countries ranked below 100. France, Belgium, and Greece ranked between 50 and 100.

“This report shows the extent to which new strategically-implemented technologies can significantly increase the effectiveness of tax collection by tax authorities and companies. However, it should be noted that improvements to tax systems will not be brought about only by technology. Tax systems must be simple, consistent, easy-to-understand, and well managed to facilitate collection and payment of taxes. This will increase the tax revenue for the state without the need to raise existing or implement new taxes. To make this happen, tax professionals and politicians must have the right information and skills so that technologies can assist them,” 

said Andrew Packman, Total Tax Contribution and Tax Transparency leader, PwC UK.

The general findings of Paying Taxes 2019 confirm the trends apparent since 2004:
 

• The average time to comply with tax obligations dropped by 83 hours from 324 to 241.
  
  
• The average number of payments has decreased from 34.4 to 24.1 since 2004 due to the implementation of new technologies.
  
  
• In 2017, the CIT rate decreased in 58 and increased in 37 countries. In contrast, the personal income tax (PIT) rate decreased in 17 and increased in 39 countries. This trend of a lower CIT rate and a higher PIT rate has continued since 2005.
  
  
• On average, the time to obtain a VAT refund is 19.2 weeks in advanced economies and more than twice as long in developing countries (44 weeks).

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 2019 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 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 2019 was compiled from June 2017 to June 2018, and is based on legislation applicable at 31 December 2017. 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.

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