November 13, 2006
In a report titled "Paying Taxes -- The Global Picture," the World Bank and its co-authors at PricewaterhouseCoopers make the case for simplifying business taxes. Burdensome rules and multiple levies, they argue, promote tax evasion even when corporate tax rates are low. Make the system transparent and simple, and the private sector will pony up. It's an argument that could be made for personal income taxes, too, says the Wall Street Journal.
The Bank's findings echo that of the flat-tax camp; namely, simple tax regimes promote compliance and efficiency:
- By "simple," the Bank doesn't just mean unifying rates; it includes making the forms easy to read, understand and file.
- World-wide it takes an average of 332 hours a year for businesses to comply with tax requirements, ranging from 2,600 hours in Brazil to 325 in the United States to 68 in Switzerland.
- There's no reason a tax form can't fit on a few pages, as in Hong Kong, or be filed over the Internet, as in Singapore.
Tax simplification also means trimming the tax regime itself:
- The Bank found that corporate income taxes compose only 36 percent, on average, of businesses' annual tax burden.
- Property, dividend, capital gains, municipal and social security taxes, among others, make up the rest -- not to mention the various loopholes carved out for certain industries.
- Countries such as Egypt, which unified its corporate tax rates and eliminated about 3,000 corporate exemptions and tax holidays last year, saw tax filings double.
- Russia implemented a flat tax in 2004 and saw tax revenues soar.
Source: Editorial, "Tax Epiphany," Wall Street Journal, November 13, 2006; World Bank, "Paying Taxes: The global picture," PricewaterhouseCoopers, November 7, 2006.
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