allAfrica.com: Ethiopia: Nation Stands Amongst Top 30 Performers in Ease of Paying Taxes (Page 1 of 1)

Ethiopia ranked one of the best 30 nations in making tax payments easier amongst 178 world economies, the World Bank's latest report on ease of paying taxes released last month.

The country ranked at the 29 position out of the 178 economies treated in the freshly released report, beating a number of both developed and developing countries such as the United States, Sweden, Korea, South Africa, Kenya and China in ease of tax payments.

This ease of tax payments refers to the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures of administrative burden in paying taxes.

"Paying Taxes 2008" offers data on total tax rates, payment frequency, and the time needed to comply with tax regulations in 178 economies.

This year the top 10 economies for ease of paying taxes are Maldives, Singapore, Hong Kong (China), United Arab Emirates, Oman, Ireland, Saudi Arabia, Kuwait, New Zealand, and Kiribati respectively. The 10 economies which in contrast were found most difficult are, Panama, Jamaica, Mauritania, Bolivia, the Gambia, Venezuela, the Central African Republic, the Republic of Congo, Ukraine, and Belarus ranking from 169 to 178 respectively.

This year, 31 economies improved their business tax systems, and 65 have done so over the past three years, the report indicated. Bulgaria was the top reformer, and Turkey was runner-up while Belarus was the least performer.

Tax reforms that make it easier for firms to pay taxes can increase government revenues by broadening the tax base, according to the report, dubbed Paying Taxes 2008, the second one in an annual series on tax systems.

" While reducing corporate income tax was the most popular reform, implemented in 27 economies worldwide, many countries have reduced the compliance burden by simplifying or eliminating other business taxes, according to the report. Countries in Eastern Europe and Central Asia had the most reforms in 2006 and 2007, but tax rates remain highest in the regions and in Africa. The compliance burden is highest in Latin America and in Eastern Europe and Central Asia, the report indicated.

"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, co-author of the report and tax specialist with the World Bank. "Economies with a lower business tax burden also have more new firms entering the market."

The case of Egypt is instructive, indicated the report. Two years ago the country implemented major tax reforms, which included reducing the corporate income tax rate by almost half. This has increased the government's tax base and revenues.

Complying with administrative tax requirements remains a real burden for business, said the report. 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. According to the report there are, however, wide variations between countries. For example, it takes 105 days to comply with consumption taxes in Azerbaijan but only one day in Switzerland.

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.

Compliance issues can significantly affect the overall ranking either counteracting the benefit of a low tax rate or mitigating the impact of a high tax rates, the report said. 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. "Businesses need to be more upfront in revealing their total tax contributions to help governments assess their real economic footprint," said Susan Symons, co-author of Paying Taxes 2008 and tax partner at PricewaterhouseCoopers LLP. "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."

The findings demonstrate that when considering reform, governments need to look at all taxes paid by companies. Corporate income tax is only a part of the story, accounting for only 37 percent of the total tax rate, 26 percent of the number of hours spent on tax compliance, and 12 percent of the number of tax payments, according to the report.

Paying Taxes 2008 gives policymakers the ability to measure tax regulation performance in comparison to other countries, learn from global best practices, and prioritize reforms, according to the authors. The indicators can also be used to analyze economic and social outcomes such as informality, business start-ups, and investment.

This year's report finds that business taxation goes well beyond corporate income taxes. It identifies five types of taxes that firms pay: profit, social, property, turnover, and other taxes, such as municipal fees and fuel taxes.

The report is a joint publication of the World Bank, International Finance Corporation, and PricewaterhouseCoopers.

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