UK tax system still the second most effective in the G20 for ease of paying business taxes

Nov 20, 2018

The UK has the second most effective tax system in the G20 for the ease of paying business taxes but remains outside the global top 20, according to the latest edition of PwC and The World Bank Group’s Paying Taxes report.

For the second year running, the study ranks the UK tax system 23rd overall for the ease of paying taxes based on a medium sized domestic business. Canada, ranked 19th overall, has the most effective tax system in the G20.

The report looks at the overall tax rate and time spent preparing, filing and paying the three main taxes (corporation tax, labour taxes and VAT), ranking 190 global economies. On average, the case study UK company takes 105 hours to prepare, file and pay these taxes, compared to the global average of 237 hours.

Hong Kong SAR has jumped above Qatar and the United Arab Emirates to claim the most effective tax system. The US ranked 37 although the data cut-off for this report was prior to the introduction of the US tax reforms.

Kevin Nicholson, UK head of tax at PwC, said:

“As Brexit approaches and technological developments continue apace, it’s never been more important that UK businesses are able to engage with an effective and simple tax system. Less time spent on administrative tasks means more time spent on activity that brings the greatest value and increases productivity. Business can take comfort that the UK has retained its position as having one of the most effective tax systems in the G20 when it comes to the ease of paying taxes.

“While our tax system may continue to fair favourably from an administrative perspective it is, however, far from perfect. Changing ways of working and doing business, technological advances and a perceived disparity between the tax treatment of bricks and mortar businesses and those operating online have all highlighted the need to review a system that has not seen major reform since the 1980s.

“These factors, together with the expected start of a ripple effect from the US tax reforms, will be felt increasingly over the coming years. The importance of the UK being considered an attractive location for investment has never been greater, so now is the right time to take a step back and consider what is needed to ensure we have a tax system that is fit for the world that lies head.”

The report suggests that tax authorities throughout the world could do more to realise the full potential of new technology to reduce the tax compliance burdens on taxpayers. It illustrates how developments in tax software, real time reporting systems and data analytics are transforming the capabilities of tax administration. Some advanced economies have continued to improve their systems to the benefit of both taxpayers and tax authorities, significantly reducing the time it takes to prepare, file and pay taxes.

Yet the report notes that overall the size of the gains in 2017 is relatively small in global terms. In Poland, the implementation of new technology for VAT  compliance has increased the administrative burden, at least in the short term, while in Spain a more established VAT system has reduced the time slightly.

The impact of HMRC’s own Making Tax Digital programme, which comes into force in April 2019, will be assessed in future editions of the report.

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. This can broaden the tax base and raise revenue without requiring new taxes. To do so, tax professionals and policy-makers need to have access to the correct skills and insight, which technology gains can help to support.”

Top 20 ranked economies

1. Hong Kong SAR

2. Qatar

=. UAE

4. Ireland

5. Bahrain

6. Mauritius

7. Kuwait

8. Singapore

9. Denmark

10. New Zealand

11. Finland

12. Oman

13. Latvia

14. Estonia

15. Bhutan

16. Georgia

17. Zambia

18. Lithuania

19. Canada

20. Switzerland

G20 ranking

19. Canada

23. United Kingdom

24. Republic of Korea

26. Australia

37. United States

44. Germany

46. South Africa

53. Russia

55. France

78. Saudi Arabia

80. Turkey

97. Japan

112. Indonesia

114. China

116. Mexico

118. Italy

121. India

169. Argentina

184. Brazil

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