Paying taxes 2016

Ten years of in-depth analysis on tax systems in 189 economies.

Since the first edition of Paying Taxes, and especially following the global financial crisis, the media, the public and many policymakers have become increasingly interested in how international tax systems operate. Most recently the focus has been the work initiated by the G20 and carried out by the Organisation of Economic Cooperation and Development (OECD) on Base Erosion and Profit Shifting (BEPS). The BEPS agenda however does not consider what some commentators would consider to be equally important issues for developing economies, including how to enhance the administrative capacities of tax authorities, reduce the informal economy and corruption while promoting growth and investment.

The Paying Taxes study, with its emphasis on efficient tax compliance and straightforward tax regimes provides valuable insight into many of these developing country issues. It can be an invaluable source of information to decision-makers, providing an independent assessment of whether interventions are resulting in a simplified compliance process for a standardised domestic model business. Governments also often find it useful to be able to learn from the experience of economies in their peer group and to consider whether a measure adopted elsewhere might be relevant for their economy.

The Paying Taxes study provides an unrivalled global database which supports an ongoing research programme.

One area of tax compliance that Paying Taxes has not considered to date is post filing-compliance which covers the processes that take place once a tax return has been filed, including the paying of tax refunds, tax audits and tax appeals. This year we conducted a pilot project into this area and some initial qualitative findings are included in this publication. Further detail will be available in early 2016.

One of the strengths of Paying Taxes is that it provides data on a like-for-like basis, year after year with the fundamentals of the study staying unchanged since the start. It looks at a medium sized case study company that is owned and operates entirely domestically. For each economy in the study, three sub-indicators are assessed; the costs of all taxes borne by the company (the Total Tax Rate), the time required to comply with tax obligations and the number of tax payments made. Using these components, the study continues to provide an objective basis for governments to benchmark their tax systems.

Over the period of the study there has been a steady decrease in our three sub-indicators, as across the world the tax cost has gradually reduced and electronic systems have made tax compliance less burdensome. The rates of decrease have however slowed in recent years and this year in particular we have seen a mixed picture for the Total Tax Rate. While across the globe the average Total Tax Rate has fallen very slightly, it actually rose in more economies than it fell. We have also seen diametrically opposing instances of tax reform with, for example, one economy introducing a tax which another economy has abolished or one economy increasing a tax rate which another has reduced.

This suggests that economies are taking different approaches to tax policy in the face of similar economic pressures.

The compliance sub-indicators also continued to fall this year, though there remain significant differences between the regions. Indeed, over the ten editions of Paying Taxes, some of the least reformed economies and regions are those where tax compliance is the most burdensome, while in the last year the high-income OECD group of economies had the most reforms as counted by Paying Taxes. This suggests that there are many economies that still have considerable scope to reform the operation of their tax systems, and that challenges such as the availability of IT infrastructure may need to be addressed before the tax system can be significantly improved.

As well as our analysis of the Paying Taxes sub-indicators and reforms, we also look in this publication at the place of employment taxes in a balanced tax system, the role tax can play in reducing the informal economy and how to improve relationships between taxpayers and tax authorities. We also have some in-depth views from selected economies.

We hope that you enjoy reading this year’s publication and we would encourage you to get in touch if you have any questions, comments or suggestions for future areas of research.

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