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Tax reforms that make it easier for firms to pay taxes can increase government revenues by broadening the tax base, according to 'Paying Taxes 2008', a report published this week.

'Paying Taxes 2008' is the second report in an annual series by the World Bank, IFC, and PricewaterhouseCoopers, covering 178 countries worldwide.

The report presents new empirical evidence that there is a win-win opportunity for governments and firms in simplifying tax systems, easing compliance costs on business, and reducing tax rates.

According to PwC:

"The study allows direct comparison of tax systems from around the world by use of a standardized case study. The Report uses the Total tax framework developed by PricewaterhouseCoopers which demonstrates again that corporate income tax is only part of the story. Governments need to look at all of the taxes that companies pay when considering their reform agenda."

"In particular the overall ranking for each country is determined by assigning equal weights to the individual indicators for the number of tax payments, the time required to comply and the total tax cost which is measured by the total tax rate, thereby generating an overall ranking for each country for the ease of paying taxes."

The Report also offers some insights on a like-to-like comparison of the BRIC economies (Brazil, Russia, India & China).

India, ranked at 165, has an overall better ease of paying taxes ranking than China (168) and scores ahead of its eastern neighbour on two key parameters; that is a lower total tax rate, India (70.60%) to China (73.90%), and on the time to comply index, where it scores ahead of Russia and Brazil.

However, on an overall basis it appears that the BRIC economies have some gap to bridge vis-à-vis other countries. Russia - with the best overall ease of paying taxes ranking among the BRIC economies - stands at a relatively moderate 130 among the 178 countries surveyed.

“Reducing the tax burden was the second most popular reform of the business regulatory environment this year. Despite previous reluctance to reduce tax burdens for fear of cutting government revenues, some governments that have implemented tax reform have reaped the benefit of higher investment and economic growth,” explained Rita Ramalho, coauthor of the report and tax specialist with the World Bank–IFC Doing Business project.

She added that: “Economies with a lower business tax burden also have more new firms entering the market.”

The report calls on businesses to play a strategic part in reform.

Rahul Garg, executive director, PricewaterhouseCoopers, suggested that:

“Companies need to be more upfront in communicating to various stakeholders their total tax contribution, to help Governments assess their real economic footprint. More and better information about the taxes paid and the cost of compliance is essential to understanding how tax systems affect businesses."

He continued:

"Governments need to look across all taxes when considering reform. We hope the new information on the ranking system for ease of paying taxes in this year’s report will help focus public debate on easing administrative burden and compliance costs as part of the reform efforts which ultimately spur overall investment in the economy.”

This year the top 10 economies for ease of paying taxes were, in order: Maldives, Singapore, Hong Kong (China), United Arab Emirates, Oman, Ireland, Saudi Arabia, Kuwait, New Zealand, and Kiribati.

The 10 economies where it is most difficult were, from 169 to 178: Panama, Jamaica, Mauritania, Bolivia, the Gambia, Venezuela, the Central African Republic, the Republic of Congo, Ukraine, and Belarus.