The e-filing initiative for payment of corporate taxes by Indian firms has a positive environment spin-off, as per a World Bank-PriceWaterhouseCoopers study.
The study says paper tax returns filed by businesses in 175 countries gobble up 100,000 trees a year. On an average, companies file 35 pages of returns globally. Even in economies like the US, an average firm files 64 pages of tax data. In India, the number of pages with annexures usually cross 30.
But beyond the environment issue, the study says the tax reform agenda of governments should go beyond changing corporate tax rates. For instance, it says Indian companies pay almost 81% of their commercial profits as taxes. Of this, the share of corporate tax is only 14.3%.
The corresponding figure of taxes paid as percentage of commercial profits is 77% in China, but only 31% in Korea, 38% in South Africa, 72 % in Brazil and 45% in the US. Other than the BRIC countries, the percentages are 54% in Russia, 53% for Japan and only 29% in Singapore. The joint study adds the shift in taxation from direct taxes to a VAT and GST regime by many countries needs to be planned. It says in this model, business becomes the governments unpaid tax collector.
This increases the compliance cost for business. The report says, Compliance costs and profit-loss account impacts have been growing jointly with the expansion of VAT and GST, as countries are using these as a tax-raising measure on business. It concludes that these are, therefore, not tax- neutral, especially as there are no global norms for taxes.
Also, a rise in VAT would need a cut-back in income tax, to maintain the purchasing power of individuals. Besides, there could be a one-off rise in inflation.
The study is an accompaniment to the Doing Business Report, recently released by IFC. The study also shows it takes a company in India 264 hours a year to comply with tax legislation. The process takes 325 hours in the US and 105 hours in the UK. China ranks much below India in terms of time required to comply with tax legislation, at 872 hours.
In countries like the UAE, it is 12 hours and in Singapore, 30 hours. In contrast, it takes more than 2,000 hours at places like Brazil, Taiwan or Ukraine.