DOING BUSINESS 2009 - JOHN J. HADDAD, Ph.D.

OverviewStarting a businessDealing with construction permitsEmploying workersRegistering propertyGetting creditProtecting investorsPaying taxesTrading across bordersEnforcing contractsClosing a businessFIGURE 8.1Top 10 reformers in paying taxesAverage improvement2007200848% 16% 4%Payments Time Totaltax rate1.2.3.4.5.6.7.8.9.10.Dominican RepublicMalaysiaAzerbaijanSouth AfricaChinaGreeceColombiaFranceHondurasThailandSource: Doing Business database.PAYING TAXES 39For Kah, the owner of a Cameroon-basedmanagement consulting business, havinga simple tax system with standardizedFIGURE 8.1ratesTop 10andreformerspaymentin payingchannelstaxesis fundamentalAverage improvement to the ease of doing business. Yetin Cameroon, which ranks among the2007most difficult 48% economies 16% in which to 4% paytaxes, complying with tax regulationstakes more than 1,000 hours and 41 taxpayments a year. 12008 To file a tax return for her company,Kah often spends hours waiting inthe tax office for information from taxinspectors. Because she refuses to payextra, she regularly endures long, costlycourt procedures. And because the taxsystemPaymentslacks transparency,TimeresultsTotalaretax rateoften arbitrary.Kah feels that tax officers see her asan easy target. She is not the only one.A recent study in Uganda shows thatenterprises headed by women perceivea greater regulatory burden—and moreFIGURE harassment 8.3 from public officials—thanthose headed by men. 2Total tax Taxes rate are (% of profit) essential. Without them60 there would be no funds for the basicOther taxespublic services vital to a well-functioning1. Dominican Labor Republic taxes and contributionseconomy 2. Malaysia and Profit an taxes inclusive society. Yet40 firms 3. Azerbaijan in 90% of the countries covered bythe 4. World South Bank Africa Enterprise Surveys ranktax 5. rates China and tax administration among20 the 6. top Greece 5 obstacles to doing business. 37. ColombiaBusinesses prefer lower tax rates that8. Franceare applied in a straightforward way. Or,09. Hondurasif 10. rates Thailand are high, businesses want goodservicesMiddlein return.East East Asia South& North & Pacific AsiaWhere Africataxes are high and commensurateSource: Doing gains Business seem database. low, many businessessimply choose to stay informal. A recentstudy finds that higher tax rates are associatedwith less private investment, fewerFIGURE 8.4Most formal time businesses in Latin America per capita & Caribbean and lowerrates of business entry. The analysis suggests,for example, that # tax a 10% payments increase inNumber ofthe effective corporate tax rate reducesOECD13the investment-to-GDP ratio by 2 percentageMiddle points. East 423EconomiesEast Asiathat rank high on the25ease of paying taxes tend to have lowerand less complex business taxes (table 328.1). Sub-Saharan They also have simple administrativeprocesses for paying the taxes and38Eastern Europefiling tax returns. For businesses, it’s notFIGURE 8.3Table 8.1Profit taxes lowest, but overall tax burden still high in Eastern Europe & Central AsiaWhere is it easy to pay taxes —Total and where tax rate not? (% of profit)often higher revenue for governments.In Mauritius in 2007/08, the governmentcollected 4 billion Mauritian rupees($150 million) more in revenuethan had been projected. Reforming thetax system was a key part of the government’sagenda over the past 3 years. Thefocus: creating an enabling environmentfor businesses through low and simpletaxes coupled with fast and efficient administration.The strategy paid off.Profit taxes lowest, but overall tax burden still high in Eastern Europe & Central AsiaOECDhighincomeWho reformed in 2007/08?Thirty-six economies made it easier topay taxesEasternin 2007/08.LatinAsSub-Saharanin previousEurope & America Africayears, Central the most & popular Caribbean reform featureAsiawas reducing the profit tax rate, donein no fewer than 21 economies. Thesecond most popular was introducingand improving electronic filing and pay-FIGURE 8.2Rankings on paying taxes are based on3 subindicatorsEasiest 60Rank Most difficult RankOther taxesMaldives 1 Panama 172high income 183 Number Time of hours (hours per year) Firm tax liabilityLabor taxes and contributionsper year to prepare, as % of profits beforeQatar Profit 2taxesJamaica 173file returns& North Africa 216all taxes borneHong 40 Kong, China 3 Mauritania 174and pay taxesUnited Arab Emirates 4 Gambia, The 175& Pacific 252Singapore 5 Bolivia 17633.3% 33.3%South AsiaIreland 6 Venezuela 177Time 293 Total20tax rateSaudi Arabia 7 Central African Republic 178Africa 312Oman 8 Congo, Rep. 17933.3%Kuwait 9 Ukraine 180 & Central Asia463880PaymentsKiribati 10 Belarus 181 just Latin the America tax rates that matter. The administrativeMiddle East East Asia South OECDNote: Rankings are the average of the economy rankings on the& Caribbean Eastern Latin Sub-Saharan35394& North & Pacific Asiahigh Europe processes & America do too. Africanumber of payments, Africa time and total tax rate. See Data notes incomeFastCentraland efficient& CaribbeanNumber of tax payments per yearadministrationfor details.Source: Doing Asia Business database.Source: Doing Business database.Note: See Data notes for details.Source: Doing Business database.means less hassle for businesses—andFIGURE 8.5A third of reforms in Eastern Europe & Central AsiaNumber of reforms easing payment of taxesby Doing Business report yearFIGURE 8.4(c) The International Bank for Reconstruction and Development / The World BankFIGURERank3 subNumbper yefile reand pNote: SeFIGURETop 5Reforms