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November 19, 2015
DOING BUSINESS 2016
Augusto Lopez-Claros, Director
Global Indicators Group
2
What does Doing Business measure?
Doing Business indicators:
Focus on regulations relevant to the life cycle of a small to medium-size domestic business.
Are built on standardized case scenarios.
Are measured for the most populous city in each country, and the second largest business city in countries with more than 100 million inhabitants.
Are focused on the formal sector.
Doing Business DOES NOT measure all aspects of the business environment such as security, macro-economic stability, prevalence of bribery and corruption, level of training and skills of the labor force, proximity to markets, regulations specific to foreign investment or the state of the financial system.
The 11 areas of business regulation measured by Doing Business affect firms throughout their life cycle
3
In getting a location• Dealing with
construction permits
• Getting electricity• Registering
property
At start-up• Starting a business• Labor market
regulation
In getting financing• Getting credit• Protecting
minority investors
In daily operations• Paying taxes• Trading across
borders
When things go wrong• Enforcing contracts• Resolving insolvency
Tax rates among the top obstacles that firms face across the developing world
• Based on Enterprise Surveys in 135 countries around the world
• Direct responses from representative samples of the private sector
4
2.5
3.5
3.5
3.5
4.3
7.0
7.2
10.3
11.0
11.5
11.8
16.6
0 2 4 6 8 10 12 14 16 18
Business licensing and permits
Access to land
Customs and trade regulations
Tax administration
Crime, theft and disorder
Corruption
Inadequately educated workforce
Electricity
Political instability
Tax rates
Practices of the informal sector
Access to finance
Percent of firms identifying the problem as the main obstacle to their business activity, %
Sources: Doing Business database; World Enterprise Surveys.
The greater the difficulty of paying taxes, the more likely firms are to perceive corruption as a problem
5
Note: The sample comprises 144 economies. The economies are grouped into quartiles by their distance to frontier score for paying taxes, which recorded on
ow common it is to make undocumented extra payments or bribes in connection with (1) imports and exports; (2) public utilities; (3) annual tax payments; (4) awarding of public contracts and licenses; and (5) obtaining favorable judicial decisions. The answers range from 1 (very common) to 7 (never occurs). The score for the corruption perceptions index relates to the degree to which corruption is perceived to exist among public officials and politicians by business people and country analysts. Score ranges between 100 (highly clean) and 0 (highly corrupt).
Sources: Doing Business database; World Economic Forum 2014, Transparency International 2014
0
10
20
30
40
50
60
70
0
1
2
3
4
5
6
7
Most difficult Least difficult
Score (0-100)Score (1-7)
Irregular payments and bribes Corruption perceptions index
more irregular payments
less corrupt
Economies scored by ease of paying taxes, quartiles
fewer irregular payments
more corrupt
Why do tax rates and tax administration matter?
6
Taxes are the price we pay for a stable, more equitable society:
Funding for social programs and public investmentsKey to building effective government
But tax rates and burdensome tax administration remain top obstacle to business
Challenges:To choose level of tax rates and tax baseTo design tax compliance system that encourages taxpayerparticipation
What does the Paying Taxes indicator measure?
7
• 3 indicators: time, payments and total tax rate for a local medium-size company to pay all taxes
Methodology
8
• Paying Taxes measures tax cost and administrative burden of paying taxes for standardizedbusiness in its 2nd year of operation (2014):
Limited liability taxable company
100% domestically owned
Has 60 employees: 4 managers, 8 assistants and 48 workers
Performs general industrial or commercial activities
Does not participate in foreign trade
Has a turnover of 1,050 times income per capita
9
Note: Data on Tax revenues (% of GDP) are for year 2012,. The Human Development Index in the HDR 2014 report is for 2013.
Sources: Doing Business 2016, World Bank Development Indicators Database, Human Development Report (HDR) 2014.
0%
10%
20%
30%
40%
50%
60%
Ireland Chile Uganda Poland RussianFederation
Côte d'Ivoire
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Human development index (HDI) Total tax rate (% of profit) Tax revenue (% of GDP)
Higher tax rates do not always lead to higher tax revenue or better welfare
High HDI
Low HDI
Strong convergence in tax compliance time across economies since 2004
694
491
211 194
0
100
200
300
400
500
600
700
800
Time to prepare, file and pay taxes (hours per year)
Worst Quartile
Best 3 Quartiles
10
Source: Doing Business database
Good practices in Paying Taxes
11
• Self-assessment systems make it possible to collect taxes earlier and reduce the likelihood of disputes over tax assessments. They also reduce opportunities for corruption.
• E-system for filing and paying taxes lightens the workload, reduces operational costs and time for tax administrations and increases tax compliance. For taxpayers, it saves time by avoiding errors and making it easier to prepare, file and pay taxes.
• The same tax treatment for taxes with the same tax base makes tax compliance convenient and easier.
Practice Economies* Examples
Allowing self-assessment
161Argentina, Canada, China, Rwanda, Turkey
Allowing electronic filing and payment
84Australia, Colombia, India, Mauritius, Tunisia
Having one tax per tax base
50Angola, Morocco, Namibia, Norway, Paraguay
Good practices around the world in making it easy to pay taxes
* Among 189 economies surveyed
Poland has 2 out of 3 good practices: self-assessment and e-system for filing and paying taxes
12
Sources: Doing Business database; World Database.
Following Doing Business best practices would also significantly decrease the time to pay taxes
Not following best practices:
805.7 million days
47.6 million days
• In the 78 economies covered by both Doing BusinessEntrepreneurship Database, an estimated 31.7 million limited liability companies were in operation in 2014.
• Assuming that they followed the rules and regulations for paying taxes in their home economy as measured by Doing Business, these firms together spent 805.7 million days to file their taxes.
In countries that do not follow good practices, companies spend 17 times moretime to prepare, file and pay taxes
Potential time savings = 758.1 million days
Key findings of Paying Taxes in Doing Business 2016
13
• Globally, the case study company needs on average 261 hours to comply with tax obligations.It has to make 26 payments per year and has an average total tax rate of 40.8%.
• In 2014, 40 economies made it easier or less costly to comply with tax obligations.
• Globally, the most common feature of tax reforms in the past year was the introduction orenhancement of electronic systems for filing and paying taxes. Eighteen economiesimplemented such changes:
Costa Rica Cyprus IndonesiaJamaica Malaysia MontenegroMorocco Mozambique PeruPoland Rwanda SerbiaSlovak Republic Spain TajikistanUruguay Vietnam Zambia
Reforms recorded in Paying Taxes in Doing Business 2016
14
By 2014 eighty-four economies have a fully implemented electronic system for filing and paying taxes
15
30
20
14
8
5
5
2105
OECD high income (30 of 32)
Europe & Central Asia (20 of 25)
Latin America & Caribbean (14 of 32)
East Asia & Pacific (8 of 25)
Middle East & North Africa (5 of 20)
Sub-Saharan Africa (5 of 47)
South Asia (2 of 8)
Electronic system not available or notused by majority of businesses (105)
Note: Electronic system is counted where both filing and payment of taxes are done online and used by the majority of medium-size businesses.Source: Doing Business database
Over the past 5 years, Europe and Central Asia implemented the most reforms in electronic tax systems
16
Note: The reforms shown for each year until 2014 are those recorded from June 1 of that year to June 1 of the following year. For 2014 the reforms shown are those recorded from January 1 to December 31 of that year.Source: Doing Business database
Reforms introducing or enhancing electronic system for filing and paying taxes
2010 2011 2012 2013 2014
East Asia & Pacific
Latin America & Caribbean
OECD high income
Sub-Saharan Africa
South Asia
Middle East & North Africa
Europe & Central Asia
In 2014, Serbia improved the most on making it easier for companies to comply with tax obligations
17
Source: Doing Business database
67 payments
42 payments
230
240
250
260
270
280
290
2012.5 2013 2013.5 2014 2014.5
Tim
e (h
ou
rs p
er y
ear)
+13
0
10
20
30
40
50
60
70
80
90
100
Serbia improved its Paying Taxes DTF score from 48.9 in Doing Business 2015to 61.9 in Doing Business 2016
In 2014, Poland also made complying with tax obligations easier for companies
18
Source: Doing Business database
19 payments
7 payments
260
270
280
290
300
2012.5 2013 2013.5 2014 2014.5
Tim
e (h
ou
rs p
er y
ear)
+7.5
0
10
20
30
40
50
60
70
80
90
100
Poland improved its Paying Taxes DTF score from 72.2 in Doing Business 2015to 79.6 in Doing Business 2016
OECD high income region has lowest number of payments and tax compliance time across all regions
19
11 25 18 19 31 39 30177 201 216 233 299 309 3610
50
100
150
200
250
300
350
400
450
0
5
10
15
20
25
30
35
40
45
OECD highincome
East Asia &Pacific
Middle East &North Africa
Europe &Central Asia
South Asia Sub-SaharanAfrica
Latin America& Caribbean
Payments (number per year) Time (hours)
Source: Doing Business database
Poland is among the countries with lower tax payments
20
4 8 9 7 8 11 883 110 218 271 275 277 4050
50
100
150
200
250
300
350
400
450
0
5
10
15
20
25
30
35
40
45
Norway UnitedKingdom
Germany Poland Portugal Hungary Czech Republic
Payments (number per year) Time (hours)
Source: Doing Business database
OECD high income region has a total tax rate close to the world average
21
32.6 33.5 34.8 38.9 41.2 46.5 47.70.0
10.0
20.0
30.0
40.0
50.0
60.0
Middle East &North Africa
East Asia &Pacific
Europe &Central Asia
South Asia OECD highincome
Sub-SaharanAfrica
Latin America& Caribbean
Total tax rate (% of profit)
Total tax rate is close to the world average of 40.8%
Source: Doing Business database
Poland is among the countries with a total tax rate below the regional average
22
32.0 39.5 40.3 41.0 48.4 48.8 50.40.0
10.0
20.0
30.0
40.0
50.0
60.0
UnitedKingdom
Norway Poland Portugal Hungary Germany Czech Republic
Total tax rate (% of profit)
Total tax rate is below the OECD average of 41.2%
Source: Doing Business database
Paying taxes in Poland in 2014 - Overview
23
Tax Payments (number)
Payments required by
law (number)
Time (hours)
Statutory tax rate Tax base Total tax rate
(% of profit)
Value added tax (VAT) 1 12 98 23.00% value added not included
Transport tax 1 2 - PLN 1,408 owned truck 0.06
Property tax 1 1 -PLN 0.88/m2 of land and PLN 22.82/m2 of building
property area 0.93
Social security contributions 1 12 103 16.93% gross salaries 19.10
National disabled fund 1 12 - 40.65% x 6% x average salary per employee 2.83
Labor fund 0 12 - 2.45% gross salaries 2.76
Guaranteed employees' fund 0 12 - 0.10% gross salaries 0.11
Corporate income tax 1 12 70 19.00% taxable profit 14.48
Fuel Tax 1 1 - included in the price of fuel not included
Employee paid - Social security contributions
0 12 -22.75%
(7.75% credited against PIT)gross salaries not included
TOTAL 7 - 271 - - 40.3
Source: Doing Business database
Time to prepare, file and pay 3 major taxes in Poland in 2014
24
Steps Corporate income tax
Labor taxes and contributions
Value added tax TOTAL
Prepare 48 38 82 168
File 2 41 6 49
Pay 20 24 10 54
TOTAL 70 103 98 271
Source: Doing Business database
Over the past decade, Poland simplified tax compliance
25
41 743.2 40.3
420
271
0
100
200
300
400
500
0
10
20
30
40
50
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Payments (number per year)
Time (hours)Total tax rate (% of profit)
Source: Doing Business database
Further opportunities to improve paying taxes
26
•In Poland multiple labor contributions are levied on the same tax base. The same tax treatment
for taxes with the same tax base makes tax compliance convenient and easier.
•Companies in Poland pay three labor contributions on gross salaries –social security
contributions, contributions to labor fund, and contributions to Guaranteed employees' fund.
Good Practice example:
Employers in Sweden pay a single statutory social security contribution rate on behalf of their employees consisting of charges for pensions, health insurance and other social benefits. The employer-paid rate of social security contributions amount to 31.42% of gross salary.
•Focusing reform efforts to ease the administrative burden on taxpayers to file and pay taxes:
clearer rules and guidelines on taxes, less frequent changes to tax rules and further upgrade to
the software used by companies to calculate their tax liabilities.
THANK YOU!
Questions www.doingbusiness.org
28
ANNEX
IMF 2015 consultation report
29
The economy has recovered from the 2012–13 slowdown
• Real GDP growth reached to 3.4 percent in 2014 up from 1.7 percent in 2013 - supported by
strong domestic demand (accelerated wages, falling unemployment and declining
commodity prices).
• Investment benefited from robust credit growth and eased financial conditions.
• Poland has developed strong trade and financial linkages with the euro area exports to
the EU represent 75 percent of Poland’s exports.
• General government deficit declined to 3.2% of GDP in 2014 from 4.0%GDP in 2013
wage bill freeze, reduced debt servicing costs following changes to the pension system, and
a cyclical rebound in tax revenues.
• Nonetheless, inflation has been negative since July 2014.
Source: IMF Country Report No. 14/182, 2015 Consultation report
Continuing Fiscal Consolidation
30
Fiscal consolidation has advanced further, allowing Poland to exit the EU’s Excessive
Deficit Procedure (EDP) one year early
• The fiscal deficit is expected to decline to around 2¾ percent of GDP in 2015 expected
increasing revenues, strong growth, and lower expenditures on social benefits as
unemployment declines.
Medium term recommendations:
• Reforming large taxpayer administration and establishing a single Large Taxpayer Office.
• Closing a 3rd of the VAT compliance gap could increase revenue by about 0.6% of GDP in
the medium term: (i) developing industry-based compliance projects, (ii) implementing
strategies to fight the shadow economy and (iii) improving the VAT administration, including
a VAT gap analysis.
• Reducing the number of VAT rates to improve compliance and lower the burden on tax
administration.
• Preventing the 2011 VAT increase from expiring in 2017 would help sustain revenues until
tax administration reforms are finalized.