Tax authorities could do more to realise the full potential of new technology to reduce the tax compliance burden on taxpayers, according to the 2019 edition of the annual Paying Taxes 2019 Report, produced by PwC and the World Bank Group.
The report has found that the global average results for the compliance burden for business taxation are almost unchanged across four key measures:
- time to comply (237 hours)
- number of payments (23.8)
- Total Tax and Contribution Rate (TTCR) (40.4%)
- Post-Filing index (59.6 out of 100)
Paying Taxes 2019 draws upon a comparison of the taxation of business in 190 economies. The report models business taxation in each economy using a medium-sized domestic case study company.
The report illustrates how developments in tax software, real time reporting systems and data analytics are transforming the capabilities of tax administration. Some advanced economies have continued to improve their systems to the benefit of both taxpayers and tax authorities, recording significant decreases in the time it takes to prepare, file and pay taxes and in the number of payments indicator.
Yet, the report notes that the size of the gains in 2017 is relatively small in global terms. The fact there has been little change to the global average, despite 113 economies introducing tax reforms over the same period, suggests reforms are limited in nature (the report does not include the US tax reforms introduced in 2018 due to the data cut-off date for this edition of the Paying Taxes report). It also highlights that implementing new technologies for tax compliance can increase the administrative burden, at least in the short term, and that such implementation requires careful planning and consultation.
Now in its third year, the Paying Taxes post-filing index provides insight into the tax compliance burden that a business may face once it has filed its tax returns. The post-filing process for VAT and corporate income tax (CIT) returns, which are considered in the study, can be amongst the most challenging and lengthy processes for businesses to comply with.
South Africa’s overall position in the rankings – 46th – remains unchanged from the 2018 published report.
South Africa has a slightly better than average post-filing index of 60.3, compared to the Africa score of 56.0, and 59.6 globally.
South Africa performs reasonably well for the time it takes to obtain a VAT refund – 16.6 weeks, compared to the global average of 29 weeks, and 38.6 weeks in the African region. In South Africa, it also takes 8.5 hours to comply with a VAT refund, compared to the global average of 19.6 hours.
The time it takes to obtain a VAT refund in South Africa has reduced from the 26.6 weeks published in the 2018 report as this was reassessed. This is still somewhat longer than what we experience in practice, but resulted in an improvement in South Africa’s post-filing index score. It will be interesting to monitor this for further improvements over the next few years as the South African Revenue Service (SARS) clears the backlog of VAT refunds referred to in the October mini-budget and undertakes reforms in this regard.
In South Africa, the time taken to correct a CIT return takes 11 hours, compared to the global average of 15.1 hours. However, if the correction results in further interaction with the tax authority, it can take 31.6 weeks (global average – 26.1 weeks) from the submission of the correction until the completion of any interactions with the tax authority, including audits.
The country’s TTCR has increased by one percentage point from 28.9% to 29.1%. The reasons for the small increase in the TTCR related primarily to the increase in the effective capital gains tax rate to 22.4%, although property rates also contributed to the increase. The African TTRC remained unchanged between 2016 and 2017. The TTCR in 29 out of the 53 economies in the region is above the world average of 40.4%. It is notable that in 2017, 11 of the 53 economies in Africa increased their TTCR.
South Africa takes 210 hours to comply with filing tax returns and paying taxes, compared to the world average of 237 hours and across Africa 284 hours. It is noteworthy that in 27 of the 53 economies in the African region, the time to comply is below the world average, and is above 600 hours in 5 economies. The greatest reduction in time was 65 hours in Côte d’Ivoire as a result of the effective introduction of an e-filing system for large and medium companies. The biggest increase in time was 144 hours in Gabon following the introduction of two new taxes.
Regulation and skills
The report also explores the differing impact of regulation and skills on the enforcement of tax through audits. Audits can vary significantly in their duration and complexity – taxpayers can spend up to 128 hours gathering information for an audit, though for some it takes only a few hours. Improving tax officers’ skills is vital if a well-functioning tax system is to be sustained. 97% of economies offer training to tax officers, but, only 35% of economies provide regular training.
In addition governments will need to take account of how new technology affects the nature and patterns of employment and profit generation and the consequent impact on the income streams that are available to be taxed.
“Technology is transforming the nature of jobs that are available and the skills needed to do them. This in turn is likely to require greater investment in human capital, especially in learning and development. It is therefore vital that governments are able to understand the challenges ahead and how they can build resilience for public finances in the long term. We hope that this report will be of value to all those interested in making tax systems more efficient, whether in government, business, academia or civil society.”
Rita Ramalho, World Bank Group