According to the Paying Taxes study by PwC and the World Bank, Britain is now ranked 14th globally. The study rates countries by assessing the mandatory taxes and compliance burden that a medium-sized firm must pay, including the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, capital gains tax, financial transactions tax, vehicle and road taxes, and other small taxes or fees.
The research says the UK’s improved position is down to the steady lowering of corporation tax, and the fact that the UK also scores relatively well on compliance processes means it still outperforms other countries with lower tax rates.
Kevin Nicholson, head of tax at PwC, said, “As one of the most open economies in the world, the UK has to work hard at retaining and attracting business as a source of jobs and tax revenues. The corporate tax reforms are having the intended effect of bringing business to the UK.
“With further reforms still to take effect there’s a chance we could make the top ten when the corporation tax rate reaches 20% in April 2015. Reducing the compliance burden would help too.”
The Middle East has the least demanding tax system; in the United Arab Emirates, which was ranked in top place, it takes only 12 hours annually to deal with all the taxes that apply.
Globally, the average is 268 hours per year. In Brazil, it takes 2,600 hours.
Over the nine-years of the Paying Taxes study, the average compliance time has decreased by 55 hours.
The largest fall in tax rates was in the Democratic Republic of the Congo, driven by its switch from a cascading sales tax to VAT. However, if this reform is stripped out, the global total tax rate would have just increased this year by 0.2% – the first increase since the study began. The study finding that as many countries have increased tax rates as have decreased them, suggested a perceived "race to the bottom" in tax terms is not the whole picture.
Andrew Packman, tax partner at PwC, said, “Tax rates for businesses have plateaued over the last two years, having previously been falling steadily. The financial downturn has had a significant impact on tax policies around the world. While some governments have stuck to plans to reduce tax rates, others have taken the opposite tack to get immediate revenues to plug debt or fund projects.
"So the financial crisis has led to greater divergence in tax policies.”
The research shows that employment taxes now account for the largest part of tax costs for businesses worldwide, as other taxes have fallen. In 2005, labour taxes made up the smallest slice (32%) of a typical medium-sized company’s tax bill. Since then, other taxes, such as those on profits and certain turnover taxes, have fallen across the world, letting labour taxes overtake them.
Employment taxes now make up 38% of a business’ tax cost and this increased share will affect some businesses more than others.
Qatar, Saudi Arabia, Hong Kong, Singapore, Ireland, Bahrain, Canada, Oman and Kiribati complete the top ten.