Which countries tax the most?

January 2, 2013

The just-passed "fiscal cliff" deal offers a mixed bag for American business owners, as The Washington Post reports. A package of temporary business tax breaks were extended for another year, but business owners who have pass-through income above $400,000 will see a tax rate increase.

As Americans attempt to decipher how the deal would affect their taxes, they can take heart in knowing that top tax rate for corporations in Uzbekistan -- to name just one example -- is near 98.5 percent.

A new report from the World Bank and PricewaterhouseCoopers offers a revealing look at trends in tax rates around the world.

The report, which covers 185 economies, shows regional changes in tax rates and regulations between 2004 and 2011.

Regional tax picture. (World Bank/PWC)
(World Bank/PricewaterhouseCoopers)

Overall, taxes have become less onerous for companies over the past eight years, with both administrative burdens and overall tax rates going down over time.

The average global total tax rate has fallen by 7.7 percent from 2006 levels, and the amount of hours needed to comply with all of the tax paperwork has fallen by 54. Even throughout 2011, the total tax rate fell by 0.3 percent, the number of hours fell by a day and the number of payments by almost 2, the report found.

World Bank/PricewaterhouseCoopers
(World Bank/PricewaterhouseCoopers)

Here are a few more of the highlights: 

-- On average, it takes the hypothetical "case study" company 267 hours to comply with its taxes. The company makes an average of 27.2 payments and pays an average total tax rate of 44.7 percent.

-- Central Asia and Eastern Europe have made the most reforms on tax rates over the eight years of the study. "Economies in this region have shown the largest fall in both the time to comply (200 hours) and number of tax payments (22.2) and apart from the Middle East have the largest fall in the Total Tax Rate (12.6 percent)," the study found. The reforms include introducing electronic systems, reducing tax rates and simplifying the process.

-- The Middle East has had the lowest total tax rates, and Africa has the highest throughout the eight years of the study. 

-- Firms in the United Arab Emirates face the lightest administrative tax burden. They must make only four payments a year and spend 12 hours doing so.

-- Liberia improved the most in the ease of paying taxes. It also reduced the corporate income tax rate from 35 percent to 25 percent.

-- Several countries in Africa have the highest tax rates:

Olga Khazan
Olga Khazan/The Washington Post

How can tax rates add up to more than 100 percent? It's partly because of how PWC parsed the data, but it also reveals the illogical tax system in those countries:

"As a result of assumptions about the profit margin used to standardize the financial statements of the case study company, in four economies the amount of taxes due would exceed the profit of the company. To be able to comply with its tax obligations in these economies, the company would therefore have to charge more for its products and generate a higher profit. The methodology does not allow for price adjustments and assumes a standard cost markup of 120%."

 

One of the most interesting findings was that while lower corporate taxes did tend to increase investment, a country's economic growth was more closely linked to easing administrative burdens, rather than simply cutting tax rates:

Paying taxes suggests that administrative reform is the priority for governments. A sensible business tax system is not just about attractive tax rates but also tax rules which are simple and easy to comply with.

So the next time tax negotiations come to the brink, perhaps we should think about the regulations, rather than just the rates.

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Max Fisher | January 2, 2013