16 years into reforms, India retains one of the worst tax payment regimes
November, 23rd 2007
Country ranks 165th out of 178 nations in ease of tax payments survey by World Bank, International Finance Corporation & PricewaterhouseCoopers
Indian companies seem to have gotten a raw deal when it comes to a global comparison of ease of tax payments. Of a total of 178 countries surveyed, India ranks an abysmal 165th in ease of paying taxes, while the island nation Maldives has topped the list, reveals a study.
The ease and efficiency with which taxes are paid is an aggregate of three indicators, namely the number of tax payments, the time it takes for a company to comply with its tax obligations and the actual burden of tax it bears, called total tax rate (TTR). On each of these indicators, India fares poorly. In terms of tax payment, India ranks 162nd, on the time to comply it manages a marginally better 105th, while on TTR it once again plummets to 159th place, says the report Paying Taxes 2008, the second in an annual series by the World Bank, IFC and PricewaterhouseCoopers (PWC).
The report has been constructed by creating a standardised modest-size firm and reviewing its financial statements and list of transactions across the nations surveyed.
According to the report, the number of total payments made by an Indian company during the taxation process, on an average, stands at 60, even as it takes roughly 271 hours to comply with tax obligations. Disturbingly, the total tax rate defined as the total percentage of commercial profits taxed and which includes property taxes, employer social security and corporate income tax stands at a massive 70.6 per cent, making it one of the highest taxation rates in the world.
Interestingly, none of the BRIC economies fare well on overall ease of tax payments, with China at rank 168, doing much worse than India. India also scores ahead of its eastern neighbour on two other parameters, ie, a lower total tax rate ( 70.6 per cent in India against 73.9 per cent in China) and time to comply index, where it scores ahead of Russia and Brazil. Significantly, Brazil has fared the worst among the 178 countries surveyed on the time factor, taking 2,600 hours for tax payment, against Indias 271 hours.
One of the major reasons that contribute to Indias poor performance is the complexity of tax payment in the country. In Sweden, we pay taxes online. The corporate income tax, value added tax, labour contributions and property tax are filed on a single form. Doesnt everyone do it that way? notes Astrid, a Swedish business owner, in the report. Not quite. At least, not in India where innumerable complex forms need to be first demystified and then submitted.
Says taxation expert Kanu Doshi, The biggest problem we face is absolute lack of simplicity in taxation laws. If laws are simpler, compliance would jump dramatically. For instance, instead of having surcharges and cess on everything from education to petrol, why not charge one simple consolidated tax?
A fact echoed by the report as well. Countries that make it easier to pay taxes have a higher rates of workforce participation and lower rates of unemployment, among women. The Reason: a burdensome tax system disproportionately hurts smaller businesses, especially in the services sector, where most women work, notes the study.