In the past eight years, paying taxes has become easier and the tax burden lighter for many small and mid-size businesses around the world, according to research by the World Bank and accountancy firm PwC.
Administrative reforms that reduce the amount of time it takes to comply with tax laws continue, PwC and the World Bank stated in the 2013 report. But the fall in average global tax rates has stalled as governments have come under increasing pressure to cut deficits and lower sovereign debt in a global economic environment that continues to be difficult. The study found that the global average tax rate, as a percentage of profits, was 44.7% in 2012.
So where in the world are tax rates and administration the most business-friendly? Middle Eastern countries are among the top ten consistently, rankings for the past four years show.
The US ranked 69th out of more than 180 countries in 2013 and 2012. The UK fared much better at 16th in 2013, up two spots from the previous year.
The best …
In 2013, the United Arab Emirates topped the rankings, which were based on the tax rate, the number of payments and the number of hours it would take a domestically owned company with 60 employees to fully comply with all requirements. The UAE was followed by:
3. Saudi Arabia
4. Hong Kong
9. Kiribati (Christmas Island)
… and the worst:
Venezuela came in dead last in 2013, mainly because of the hassles of complying with all the requirements of the country’s tax laws, the report said. Also ranked in the bottom ten were:
182. Republic of Congo
181. Central African Republic
Middle East was least demanding. Middle Eastern governments may have to soon introduce new taxes or broaden the tax base to meet increased spending requirements and satisfy populations demanding greater economic rights, according to the report. In the past eight years, tax rates, number of payments and time spent on paying taxes have changed little, aside from the introduction of a sales tax in the Republic of Yemen six years ago.
The region’s average tax rate was 23.6%, slightly more than half the world’s overall average and the lowest of any region, PwC calculated. Kuwait, Qatar, Bahrain, Saudi Arabia and the United Arab Emirates, oil-rich countries that have the lowest tax rates in the region, collected no or little corporate income tax.
The average time to comply was 158 hours, the least for any region. The time was spent mostly on labour taxes and social contributions.
Asia Pacific had second-lowest total average tax rate. Only nine of the 36 countries in the Asia Pacific region had total tax rates above the world average, which gave the region a total average tax rate of 36.4%, the second-lowest behind the Middle East, PwC calculated. Profit taxes constituted about 48% of the region’s rate.
The average time to comply was 231 hours, but in Hong Kong it took only 78 hours and in Singapore 82 hours.
Central Asia and Eastern Europe reformed the most. Reforms in Central Asia and Eastern Europe reduced the time spent to comply by about 200 hours in the past eight years, the biggest improvement of any region, according to the report. Ukraine and Belarus have been the biggest drivers of reforms. The average total tax rate for the region has dropped 12.6% since 2004.
Tax rates varied widely in the region, from 9.4% in Macedonia to 98.5% in Uzbekistan. The average tax rate for the region was 41.3%, slightly below the 44.7% world average. The average time to comply across the region was 261 hours, six hours below the world average of 267 hours.
VATs ubiquitous in Europe. The report found total tax rates and the time it took to comply with requirements varied widely in the 30 countries in Europe.
The average total tax rate for the region was 42.6%, PwC calculated. Luxembourg’s was the lowest at 21%; Italy’s was the highest at 68.3%. It also took the least number of hours to comply in Luxembourg, but the 23 tax payments per year lowered the country’s overall rankings to 14th. Ireland ranked in the top ten in the region in all three categories.
Across the region, the average time to comply was 184 hours, the lowest of any region apart from the Middle East.
Canada had most business-friendly taxes in North America. Canada’s total tax rate was 26.9%, considerably lower than the 46.7% rate in the US and the 52.5% rate in Mexico. High levels of corporate income tax drove up the US rate, which was calculated for a company in New York. Taxes levied by states, labour taxes and social contributions were significant in Mexico.
The average time to comply for the region was 214 hours, or below the global average, according to the report. It took 131 hours in Canada, 175 in the U.S. and 337 in Mexico.
Paying taxes took the longest in South America. It took an average 619 hours to comply with requirements in South America, longer than in any other region, the report said. Brazil is the worst with 2,600 hours; lengthy compliance times for income taxes, labour taxes, and consumption taxes all contributed to Brazil’s high number.
The region’s average total tax rate was 53.5%, which was the second highest. Five economies in the region had tax rates that exceeded 60%: Venezuela (62.7%), Brazil (69.3%), Colombia (74.7%), Bolivia (83.4%), and Argentina (108.3%).
Africa’s average total tax rate highest of all regions. The average total tax rate of 57.4% in Africa was the highest of any region, according to the report. Cascading sales taxes in three economies were largely responsible, according to the report. In Zambia the tax rate was 15.2%, the lowest in the region.
The average time to comply was 313 hours, with Nigeria requiring the most (956 hours) and the Seychelles the least (76 hours).
Related CGMA Magazine content:
“Global Consultants Identify Top Tax Challenges for Multinationals and Offer Advice”: More scrutiny during audits, transfer-pricing issues and rapid changes in international tax legislation top the list of global tax challenges in a survey of multinational companies. A global consortium of consultants takes a look at the tax issues and offers advice.
“Letter From … Dublin: Much Done – but Much More to Do”: Deep spending cuts and significant tax hikes are likely to further depress consumer spending in Ireland, increasing the pressure on businesses that are already struggling to deal with the effects of austerity. Irish Times correspondent Paul Golden reports on a country squeezed by bail-out debt.
“The Most Business-Friendly Countries off the Beaten Path”: Small and mid-size companies looking for business-friendly markets overseas could check out a World Bank report that tracks regulatory reform efforts in 185 countries. Many of the top improvers are rarely found among up-and-coming economies.
—Sabine Vollmer (email@example.com) is a CGMA Magazine senior editor.