Paying Taxes 2008, the second report in an annual series on tax systems, covers 178 countries worldwide. The study allows direct comparison of tax systems from around the world. It shows how businesses are affected not only by tax rates, but also by the procedural burden of compliance. The report focuses on the number of tax payments made, the time it takes to comply, and the cost of taxes, which is measured by the total tax rate. The total tax rate covers five types of taxes that firms pay: profit, social, property, turnover, and other taxes, such as municipal fees and fuel taxes. The steps, time, and cost indicators are used to determine the overall ease of paying taxes. The report concludes that there is a win-win opportunity for governments and firms if governments simplify tax systems, ease the compliance cost on business, and reduce tax rates.
This year, 31 economies, including Uzbekistan, improved their business tax systems, and 65 have done so over the past three years. Out of those 65 economies, eighteen, including Uzbekistan, reformed their tax system twice. Bulgaria was the top reformer, and Turkey was runner-up. Uzbekistan reduced the corporate tax rate from 15% in 2005 to 12% in 2006 and 10% in 2007. It also gradually reduced labor contributions from 33% in 2004 o 24% in 2007, expanded the single tax regime for small businesses, and abolished ecology tax.
While reducing corporate income tax was the most popular reform, many countries have reduced the compliance burden by simplifying or eliminating other business taxes. "Reducing the tax burden was the second most popular reform of the business regulatory environment this year. Despite previous reluctance to reduce tax burdens for fear of cutting government revenues, some governments that have implemented tax reform have reaped the benefit of higher investment and economic growth," said Rita Ramalho, coauthor of the report and tax specialist with the World Bank–IFC Doing Business project. "Economies with a lower business tax burden also have more new firms entering the market."
Despite the reform, the total tax rate in Uzbekistan remains among the highest in the world. With the total tax rate exceeding 96% of profit, Uzbekistan is in the bottom 10 countries ranking 170. To compare, the total tax rate in Kazakhstan is 36.7%, in Russia – 51.4%.
Uzbekistan ranks 65th in the world in terms of time it takes to comply with tax regulations. Also, with 118 tax payments that an Uzbek company has to make, Uzbekistan is among bottom 10 countries in the world, ranking 177 out of 178. To compare, the number of tax payments per year is 22 in Russia and 35 in China.
Complying with administrative tax requirements remains a real burden for business. Globally, on average, a company spends almost two months a year complying with tax regulations—15 days for corporate income taxes, 21 for labor taxes and contributions, and 21 for consumption taxes. However, there are wide variations between countries. For example, it takes 105 days to comply with consumption taxes in Azerbaijan, 14 days in Uzbekistan, but only one day in Switzerland. Compliance issues can significantly affect the overall ranking, either counteracting the benefit of a low tax rate or mitigating the impact of high tax rates. Scandinavian countries, while known for high taxes, do well on the ease of paying taxes because of a low compliance burden.
The report calls on businesses to play a strategic part in reform. Susan Symons, coauthor of Paying Taxes 2008 and tax partner at PricewaterhouseCoopers LLP, said, "Businesses need to be more upfront in revealing their total tax contributions, to help governments assess their real economic footprint. More and better information about the taxes paid and the cost of compliance is essential to understanding how tax systems affect businesses. It is clear that governments need to look across all taxes when considering reform. We hope the new information on the ranking system for ease of paying taxes in this year’s report will help focus public debate on where reform efforts are most effective. Ultimately, this will give business more confidence and willingness to invest."
About Paying Taxes 2008
The Paying Taxes study was carried out by PricewaterhouseCoopers and the World Bank Group as part of the World Bank Group’s Doing Business 2008 report. The methodology applied to calculate the total tax rate for each country uses the broad principles from the PricewaterhouseCoopers Total Tax Contribution Framework and looks across all taxes that businesses pay. The total tax rate indicator measures the amount of all taxes borne by the business in the second year of operation, expressed as a percentage of commercial profits.