Global tax reforms threaten to undermine UK competitiveness warns PwC
THE UK cannot afford to stand still on tax competitiveness because of the reforms being introduced by global competitors, PwC has said.
The latest PwC World Bank and IFC Paying Taxes study shows that after two years of ascent, the UK has dropped two places to 16th on the annual benchmark of business tax systems.
The data, which measures the tax costs and compliance burden for a case-study manufacturer, shows the UK’s fall was caused mainly by Macedonia introducing a number of tax reforms, prompting it to leap 19 places to seventh in the table. Norway is now also ahead in the ranking of 189 economies.
Stuart Wallace, head of tax at PwC in the West Midlands, said: “The UK has a competitive tax system, but other countries are upping the ante on reform. We can’t sit still if the Government is to make the UK the most competitive tax system in the G20.
“Corporation tax will fall to 20% in April but tax rates are only half the issue. For medium sized businesses, the time spent having to deal with taxes can have a bigger impact. Reducing the compliance burden is critical.
“We’ve seen the pace of tax reform globally slow down since the financial crisis, but it’s set to remain a priority, particularly as governments take on board the proposals from the OECD to update the system for global business.”
While the corporation tax rate for UK businesses has been falling, profit related taxes globally have risen for the second year in a row, countering suggestions of a ‘race to the bottom’. The sharpest drop was from 2008-10, when around 47 economies cut their rates during the financial crisis. Governments are now focusing on funding public spending.
The study shows that since last year’s report, there has been no let-up in the compliance burden for UK businesses. It still takes about nine days (110 hours) for a medium sized company to prepare, file and pay its corporation tax, labour taxes and value added tax – there are still eight different taxes in all.
The Total Tax Rate has fallen by just 0.3 percentage points to 33.7%, largely because of the fall in the rate of corporation tax. Other countries managed to shave off time, bringing the average compliance time globally down four hours to 11 days. The average number of payments globally was cut by one to 25.9.
South America has the most time consuming and costly tax system. The compliance time is more than seven weeks, and the total tax rate is 55.4%, compared with 40.9% globally. Bolivia comes last in the ranking, largely due to the 1,025 hours it takes to comply. Conversely the Middle East is the easiest place to pay taxes. Tax compliance takes only 12 hours for equivalent businesses in the UAE and 41 hours in Qatar, for example and low total tax rates help these economies to the number 1 position in the ranking.
“UK businesses are unlikely to think their tax compliance burden is light, but when you look around the world it’s clear things could be a lot worse. One of the attractions of the UK is the ease of paying taxes and there is still plenty of scope for further streamlining,” added Wallace.
“Earlier this year the Office of Tax Simplification was challenged with improving the competitiveness of UK tax administration, looking in particular at the Paying Taxes study.
“We welcome the OTS’s review – the UK has to work harder at retaining and attracting business than countries with specific resources, and it is much more than having a competitive tax rate. Making paying taxes simpler is equally important.”
Top 20 ranked economies
1= Qatar (up 1)
1= United Arab Emirates
3. Saudi Arabia
4. Hong Kong
5. Singapore
6. Ireland
7. Macedonia (up 19)
8. Bahrain (down 1)
9. Canada (down 1)
10. Oman (down 1)
11. Kuwait
12. Denmark
13. Mauritius
14. Kiribati (down 4)
15. Norway (up 2)
16. UK (down 2)
17. Kazakhstan (down 1)
18. Switzerland (down 2)
19. South Africa (up 5)
20. Luxembourg (down 5)
Paying Taxes ranking of G20 economies
Argentina 170
Australia 39
Brazil 177
Canada 9
China 120
France 95
Germany 68
India 156
Indonesia 160
Italy 141
Japan 122
Republic of Korea 25
Mexico 105
Russia 49
Saudi Arabia 3
South Africa 19
Turkey 56
UK 16
United States 47
Paying Taxes 2015 measures all mandatory taxes and contributions that a medium-sized firm must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and other small taxes or fees.
