A report by The World Bank Group and PwC suggests a reduction in the burden of tax compliance on businesses
The use of technology, by business and government, in tax compliance is driving continued simplification and reduction in the burden of tax compliance on businesses, says the latest edition of Paying Taxes 2018, a report by The World Bank Group and PwC.
The report examines the ease of paying taxes in 190 economies by modeling business taxation in each economy using a medium-sized domestic case study company.
Data analysis shows that due to the use of technology the time to comply declined by 5 hours to 240 hours; and the number of payments by one to 24 payments.
In addition, time needed to comply with labour and profit taxes fell by 2 hours (to 61 hours for profit taxes and 87 hours for labour taxes), compared to last year, with labour taxes showing the greatest reduction over the life of the study (since Doing Business 2006). Electronic filing and payment, improved tax and accounting software and pre-populated returns are amongst the key drivers.
The number of tax payments made has fallen by around one payment for the second year in a row, driven largely by increased on-line filing and payments capabilities, new web portals and the greater use by taxpayers of online systems.
The global average TTCR increased slightly since last the last study (40.5% compared to 40.4% in 2017). More economies showed an increase in TTCR than a reduction – 52 compared to 36. For the first time since 2004, the TTCR for taxes other than labour and profit taxes increased. Other taxes would include property taxes, road taxes, environmental fees, municipality charges, property transfer taxes and any other small charge.
Despite sizeable changes in the global average results, many economies, particularly in the lower income range, have been slower to take full advantage of the benefits of technology. The study also notes an increase in the use of real, or near real time information systems by tax authorities to track transactions, for example in Russia, the Republic of Korea and China.
Real time data is giving tax authorities the opportunity to scrutinize transactions on a near real-time basis rather than relying on reviews of annual tax returns. New real-time systems may add to compliance times as they are first implemented, but they have the potential to lead to fewer audits or to faster VAT refunds in the future.
The post-filing processes for value-added tax (VAT) and corporate income tax (CIT) returns, which are considered in the study for the second year, can be amongst the most challenging and lengthy processes for businesses to comply with. In some cases, the length of the processes can create cash flow and administrative delays for companies of more than a year. The report also finds that 162 economies have a VAT system, with a VAT refund available to the case study company in 107 economies. There is no VAT refund available in 51 economies, particularly in South America and Africa. In four economies, the purchase of an industrial machine is exempted from VAT. The EU performs the best for speed of VAT refunds (and corporate income tax processes), whereas it is a mixed picture for Central America and Middle East, and Asia Pacific, with Africa and South America lagging behind.