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Paying Taxes 2010: The Global Picture

This is the fifth year that the World Bank Group’s Doing Business project has included the “paying taxes” indicator.

The indicator measures the ease of paying taxes in 183 economies around the world. Besides paying taxes, the Doing Business project provides quantitative measures of regulations in nine other areas: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, trading across borders, enforcing contracts, and closing a business.

The paying taxes indicator measures tax systems from the point of view of a domestic company complying with the different tax laws and regulations in each economy. The case study company is a small to medium-size manufacturer and retailer, deliberately chosen to ensure that its business can be identified with and compared worldwide.

The indicator covers the cost of taxes borne by the case study company and the administrative burden of tax compliance for the firm. Both are important for business. They are measured using three subindicators: the total tax rate (the cost of all taxes borne), the time needed to comply with the major taxes (profit taxes, labor taxes and mandatory contributions, and consumption taxes), and the number of tax payments.

The paying taxes indicator measures all taxes and contributions mandated by government at any level (federal, state, or local) as they apply to the standardized business. The total tax rate subindicator measures the impact of taxes and contributions on the company’s income statements. It includes the corporate income tax, social contributions and labor taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, and vehicle and road taxes. The other two subindicators, on the time to comply and number of payments, also include taxes and contributions withheld or collected, such as sales tax or value added tax (VAT).

• The top reformer was Timor-Leste, which introduced a new tax law, streamlined the business tax regime, and simplified tax administration.
• Between June 2008 and May 2009, 45 economies made it easier to pay taxes as measured by Doing Business, almost 25% more than in the previous year.
• Eastern Europe and Central Asia had the most reforms for the third year in a row, with 10 economies reforming.
• Around the world on average, the case study company faces a total tax rate (percentage of profit paid out in taxes) of 48.3% and spends 286 hours a year, and makes 31 tax payments, to comply with tax laws.
• The time to comply with tax requirements ranges from 212 hours a year on average in OECD high-income economies to 638 in Latin America.
• The number of payments also varies widely. The company makes the most payments in Eastern Europe and Central Asia, 53 a year on average. It makes the fewest in OECD high-income economies, just 14 on average.
• Survey respondents identified the way tax audits are dealt with and the approach of the tax authorities as the elements of the tax system most in need of improvement.
• Five European Union (EU) economies implemented tax reforms in 2008/09: Belgium, the Czech Republic, Finland, Poland, and Spain.
• In the EU the average total tax rate for the case study company fell from 46% to 44.5%. This reflects, in part, cuts in the corporate income tax rate implemented in 2007/08 in Germany and Italy.
• The average time required to comply with taxes in the EU is 232 hours, down from the previous year’s 257, with labor taxes requiring the most time (117 hours). The fall reflects continued efforts in implementing and enhancing electronic filing and payment systems and in streamlining regulations and improving tax returns to simplify compliance.
• While VAT stems from a common legal framework in the EU, the time required to comply with domestic legislation varies. VAT compliance takes 30 hours in Ireland, for example, and 178 in the Czech Republic.
• The number of taxes levied on the company averages 9.5 globally. The average for the EU is almost 11.

In the Czech Republic:

• Important changes have been made to corporate income tax, VAT, and social security insurance. The Czech Republic reduced the time needed to comply with tax regulations by 34 percent – it now takes 12 payments and 613 hours (down from 930 hours last year). However, the time needed is still second highest in the EU (232 hours) and also higher than the global average across 183 economies (286 hours). Overall, the Czech Republic ranks 121 on the ease of paying taxes, down from 118 last year.