| PAYING taxes became easier and less costly for the companies across the world over the 9 years from 2004 through 2012, according to a nine-year global tax profile that compares tax regimes before and after the financial crisis.
The profile has been elaborated in a case study titled 'Paying taxes Trends before and after the financial crisis' that forms part of the World Bank Group's recently released report – 'Doing Business 2015 Going Beyond Efficiency' (DB2015). The Report compares Business Regulations for domestic firms in 189 Economies.
The Case study says: "Globally, the total tax rate for the Doing Business case study company averaged 43.1% of commercial profit in 2012. Over the 9 year period ending that year, the average total tax rate fell by 9.1 percentage points-around 1 percentage point a year. Its rate of decline was fastest during the crisis period (2008–10), averaging 1.8 percentage points a year, then started slowing in 2011. The total tax rate fell by an average of 0.3 percentage points in 2011."
The data collected by DB report team give interesting insights into the tax policies implemented during the financial crisis of 2008–09. DB looks at tax systems from the perspective of the business, through three indicators.
The total tax rate measures all the taxes and mandatory contributions that a standardized medium-size domestic company must pay in a given year as a percentage of its commercial profit. These taxes and contributions include corporate income tax, labor taxes and mandatory contributions, property taxes, vehicle taxes, capital gains tax, environmental taxes and a variety of smaller taxes. The taxes withheld (such as personal income tax) or collected by the company and remitted to the tax authorities (such as VAT) but not borne by the company are excluded from the total tax rate calculation.
Two other indicators measure the complexity of an economy's tax compliance system. The number of payments reflects the total number of taxes and contributions paid, the method of payment, the frequency of filing and payment, and the number of agencies involved. The time indicator measures the hours per year required to comply with 3 major taxes: corporate income tax, labor taxes and mandatory contributions, and VAT or sales tax.
The Case study concluded that the financial crisis had a substantial impact on national tax revenue, leading in many economies to larger government deficits and higher levels of public debt. This may have helped trigger efforts to redesign tax systems, with governments aiming to strike the right balance between raising additional revenue and avoiding a greater tax burden on businesses.
The data collected for the paying taxes indicators show a clear trend of increasing changes to tax policies during the crisis. Among the most common changes as measured by the indicators were those cutting the corporate income tax rate while increasing VAT rates and those enhancing or introducing electronic systems for filing and paying taxes. Changes easing the administrative burden of tax compliance countered the greater risk of tax evasion that arises during economic downturns. In addition, governments introduced new tax deductibility and depreciation rules that would lower the tax cost for businesses, provide them with greater flexibility in planning their cash flow and stimulate investment in specific areas.
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