November 18, 2016: Economies around the world continue to make progress in simplifying and reducing the burden of tax compliance on businesses, says the latest edition of Paying Taxes 2017, a report by The World Bank Group and PwC.

The report finds that the Total Tax Rate decreased by 0.1 percentage points to 40.6%; and the time to comply declined by 8 hours to 251 hours.

In an expanded analysis this year, the report finds that for some economies, post-filing processes for value-added tax (VAT) and corporate income tax (CIT) returns could be amongst the most challenging and lengthy processes for businesses to comply with. In some cases, the length of the processes can create cash flow and administrative delays for companies of more than a year.

The Paying Taxes 2017 report examines the ease of paying taxes in 190 economies. The report models business taxation in each economy using a medium-sized domestic case study company.

The reduction in the global average for time to comply of 8 hours is higher than in recent years reflecting ongoing improvements in electronic tax systems, and in particular as a result of reforms implemented in Brazil. Similarly, the fall in the payments sub-indicator is largely due to the introduction and use of electronic filing and payment systems, which was the most common feature of tax reform in the past year. The small decrease in the Total Tax Rate results from 44 economies increasing taxes while 38 recorded a reduction. It also represents a combination of a decrease in other taxes offset by small increases in both profit and labour taxes.

Globally, the most common feature of tax reforms in the past year was the introduction or enhancement of electronic systems for filing and paying taxes. Twenty-six economies implemented such changes. Jamaica was the top reformer, reducing the number of payments by 26 to 11.

The new additional research finds the interactions which a company has with tax authorities after a tax return has been filed can be some of the most challenging. The processes vary significantly from one jurisdiction to another.

The report finds that 162 economies have a VAT system, with a VAT refund available to the case study company in 93 economies. A fast and efficient process can be critical to ensure that a company does not face cash flow difficulties. For economies with a VAT refund system, on average it takes just over 14 hours to make the VAT refund claim, but it then has to wait over five months (almost 22 weeks) to receive the refund.

The analysis shows it typically takes less time to comply with a VAT refund in high income economies (almost 8 hours) than in low income economies (almost 27 hours). A VAT refund triggers an audit in 70% of economies, of which over half (58%) will go through a comprehensive audit.

The study also shows that 180 economies in the study levied corporate income tax in 2015. A voluntary correction to a corporate income tax return is likely to lead to a tax audit in 74 of these. On average, it takes the case study company almost 17 hours to correct the error in the CIT return. If the tax authority requires an audit, it will take just over 17 weeks to finalise. Examining the difference between low and high income countries, the study finds that in low income economies it can take more than twice as long to comply with procedures to correct CIT errors, and that low income countries are twice as likely to conduct an audit.

Augusto Lopez-Claros, Director, Global Indicators Group, Development Economics, World Bank Group said: “Until now there has been little information around the cost of post-filing procedures. The new post-filing index has shown that there are considerable variations around the world in how tax authorities approach VAT refunds and corporate income tax audits. We hope that the new data will allow governments to better understand the impact that these procedures have on businesses and will help encourage them to reform and enhance them to make it easier for companies to do business.”

Andrew Packman, leader for Tax Transparency and Total Tax Contribution at PwC said: “While we recognise the pressures on governments to raise tax revenues to fund public spending, Paying Taxes has shown that in many economies, governments and tax authorities can make it easier for companies to pay their taxes and this includes the ability to claim a VAT refund or deal with a corporate income tax audit. More efficient tax systems are good for businesses which in turn helps to promote economic growth and investment.”

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Otsuchi Town in Japan’s Iwate Prefecture was struck hard by the Great East Japan Earthquake and tsunami in March 2011. More than 800 people lost their lives, including the mayor, and 500 people remain missing. Vital information and communication technology (ICT) services were also interrupted, making it hard for citizens to carry on their daily business.

Two years later, Otsuchi Town is still recovering – and restoring ICT services is a priority. The municipality is trying to build resilience against future disasters, for instance by cooperating with the private sector to restore interrupted e-government services, leveraging cloud computing technologies.

This is just one example of Japan’s experience in using ICT for disaster risk management. On March 25, ministers and high-level policy makers from nine disaster-prone countries – Bangladesh, Chile, Indonesia, Myanmar, the Philippines, Sri Lanka, Thailand, Turkey, and Vietnam – and more than 150 participants from the Japanese government, disaster-related agencies, embassies, the private sector, academia, and civil society gathered in Tokyo to learn from Japan’s rich experience and discuss how it could be applied to disaster risk management in developing countries.

The symposium was hosted by the Japanese Ministry of Internal Affairs and Communications, the World Bank, and the Global Facility for Disaster Risk Reduction and Recovery (GFDRR).

Impact of disasters

While the Japanese experience is a reminder that no country is immune from the impacts of disasters, the statistics show that poor and vulnerable countries suffer the most. Since 1980, the economic costs of disasters in developing countries amounted to $1.2 trillion, equivalent to about a third of all official development aid. Over that same period, low-income countries accounted for only 9 percent of the total number of disasters, but 48 percent of the fatalities.

Opening the symposium, Japan State Secretary for Internal Affairs and Communications Masahiko Shibayama emphasized the critical role ICT plays in disaster management and the need to stimulate wider use of these tools in the developing world.

Chris Vein, senior manager of the World Bank’s ICT sector, said, “The World Bank’s support is evolving to reflect new development challenges, and disaster risk management is becoming one of the key areas in which ICTs can make an exceptional impact.”

Myanmar’s Union Minister of Social Welfare, Relief and Resettlement, Dr. Daw Myat Myat Ohn Khin, emphasized that lessons from Japan will contribute to strengthening disaster preparedness in other nations, including in Myanmar, where the recent Thabeikkyin earthquake claimed 18 lives and affected more than 10,000 people. She identified geo-spatial and remote sensing technologies, along with modern ICT systems, as ways to strengthen disaster management planning.

Technologies for disaster risk management

Since the January 2010 earthquake in Port-au-Prince, Haiti, where tools such as Ushahidi,Twitter, and Open Street Map proved their efficacy, the power of technology for disaster risk management has been widely recognized. The Tokyo event highlighted technologies Japan leveraged in the aftermath of the Great East Japan Earthquake and tsunami, for instance:

• A real-time traffic map was generated and made available to the public (including via Google) using data gathered from moving vehicles;
• Observation data from flood sensors was distributed to car navigation systems and smartphones; and
• GPS data from mobile phones was used to reproduce and analyze the flow of people at the time of the earthquake.

The Japanese presented other advanced technologies for disaster risk management, including for early warning (such as J-alert – a nationwide automated early warning system); emergency response, data analysis and decision making (such as tsunami arrival time, flood level and risk analysis); and information sharing (such as mobile TV and satellite mobile phones).

“The World Bank’s support is evolving to reflect new development challenges, and disaster risk management is becoming one of the key areas in which ICTs can make an exceptional impact”. 

Chris Vein
Senior Manager for ICT, World Bank

Participants discussed how low-income countries with limited resources and skills capacity could take advantage of Japanese technologies. Some have been leveraged in countries like Indonesia, where an interesting example of local customization was presented: use of mosques’ speaker systems to disseminate early warnings information.

Other participants underlined the need to build awareness in communities through regular training and school education so that people can make informed decisions.

Building resilient societies

Japanese Ministry of Internal Affairs and Communications Vice Minister Eiichi Tanaka and World Bank Special Representative in Tokyo Kazushige Taniguchi affirmed the Japanese government’s and World Bank’s readiness to help build the capacity needed to meet these challenges in developing countries.

“Japan’s experience of the Great East Japan Earthquake and the lessons it learned can be beneficial in establishing a resilient society for all countries that suffer from natural disasters. And I think these experiences and knowledge should be shared with all,” Tanaka said.

Taniguchi emphasized the importance of not only hardware installation but also applications and services, starting with basic systems such as emergency drills. He also stressed the need for governments, the private sector, and civil society to work in partnership to effectively leverage the technologies and make the appropriate investments.

The meeting provided positive perspectives on how technologies can help strengthen countries’ disaster management plans and empower communities and individuals in disaster situations.

Source: World Bank

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