Developments in tax software, real-time reporting systems and data analytics are transforming the capabilities of tax administration but many key indicators for compliance remain the same globally. This is according to the 2019 edition of the annual Paying Taxes report, produced by PwC and The World Bank Group. While some advanced economies make progress towards a more efficient taxation system, there has been little improvement in the global average, with some new technology adoptions even increasing the administrative burden in some cases.
Little improvement in global average
The report, which compares business taxation in 190 countries using a medium-size domestic case study in each jurisdiction, found that four key measures for company tax compliance are almost unchanged:
- time to comply (237 hours);
- number of payments (23.8);
- total tax and contribution rate (TTCR) (40.4 per cent); and
- post-filing index (59.6 out of 100).
While the tax systems in some advanced economies have become more efficient, with significant decreases in the time it takes to prepare, file and pay taxes, there has been little change to the global average. And although 113 countries introduced tax reforms in 2017, the lack of overall global improvement suggests these reforms are limited in nature (the US tax reforms introduced in 2018 aren't included in the report due to data cut-off date). In some cases, implementing new technologies for tax compliance can increase the administrative burden, at least in the short term. The report notes that such implementation requires careful planning and consultation.
Compliance becoming quicker
Some of the report's main findings are compared with the first Paying Taxes survey conducted in 2004:
- the average time to comply has fallen by 84 hours and the average number of payments by 10.3 since 2004 – both driven by technology;
- in 2017, profit tax TTCR fell in 58 economies and increased in 37, conversely labour tax TTCR fell in 17 economies and increased in 39. This trend of more economies with reductions in the profit tax component of TTCRs and increases in the labour tax component of TTCRs has been seen every year since 2005; and
- on average, a VAT refund takes 19.2 weeks in high income economies but over twice as long in low income ones (44 weeks).
Andrew Packman, leader for Tax Transparency and Total Tax Contribution at PwC said: “This report highlights the extent to which, when implemented strategically, new technology can drive considerable efficiencies for tax authorities and businesses alike. Yet it is also important to remember that improvements to tax systems do not come from technology alone. Simple, coherent, well understood and properly administered tax systems can help to lower the barriers for businesses to move from the informal to the formal sector.”
Audit times vary enormously
The report also notes:
- China has achieved significant tax reforms in recent years including better communication between tax authorities and taxpayers, new online systems for filing and paying taxes, improved training for tax authorities and taxpayers and integration of different tax systems.
- Some economies are finding it difficult to implement online filing and payment due to the lack of IT infrastructure, cultural barriers and complex legislation.
- Audits vary hugely in their duration and complexity: taxpayers can spend up to 128 hours gathering information for an audit, though for many it takes only a few hours. The report notes that “improving tax officers’ skills is vital if a well-functioning tax system is to be sustained.”
- Nearly all countries offer training to tax officers but only 35 per cent provide regular training.
- Governments will need to take account of how new technology affects the nature and patterns of employment and profit generation and the consequent impact on the income streams that are available to be taxed.
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