Tax regime

The UK has gone up the global ranking of effective tax regimes for the first time in seven years, having previously slipped down the league.

The league, a result of a combined report, Paying Taxes, from the World Bank, PwC and the International Finance Corporation.

According to the latest report, the UK falls into 16th position, up two places from the previous year’s report but still far below the 11th spot it occupied in 2006.

The report - which compares tax systems across 185 economies by measuring total tax cost, number of payments and time to comply – revealed that the UK’s improvement is a result of its reduced rate of corporation tax as well as increased NIC thresholds.

In the report, the relative simplicity of the UK tax system has been compared with other economies. A medium sized UK business has to make eight tax payments a year (27.2 is the global average) and spend 110 hours on tax compliance (267 hours globally). Their Total Tax Rate is 35.5% compared with the global average of 44.7%.

The United Arab Emirates, Qatar, Saudi Arabia and Hong Kong SAR, China were among the top 10 nations in which paying taxes proved to be easy for business while Cameroon, Mauritania, Senegal and Gambia proved to be the most burdensome countries.

On average across all the economies, a medium sized company pays a Total Tax Rate of 44.7% of profits, makes 27.2 payments, and spends 267 hours to comply with its tax requirements.

In the eight years since the study began, the time to comply has fallen by 54 hours, almost seven working days, and the number of payments has declined by more than six.

The average Total Tax Rate is almost flat on last year’s study, just 0.3% less. This compares with a fall of 3.3% the previous year.

The current report also confirms that regions with less complex tax regimes and lower tax costs experience stronger growth.

In addition, falling complexity across tax systems over the eight year course of the study is linked with an increase in GDP growth of around a quarter of a percentage point a year.

A 10% cut in the Total Tax Rate for medium sized businesses can be linked to increased inward investment of 0.7% per year and a rise in the annual economic growth rate of just under 0.1%.

PwC’s head of tax policy, Mary Monfries, said the UK government’s ‘open for business’ agenda has fed through to the league table of tax systems.

‘Ease of doing business is one of the UK’s strong points so it’s good we’ve made up some of the ground lost in recent years. Effective tax systems are good for growth. To keep on the map though, stability of policy and consistent messaging that encourages business investment will be crucial,’ said Monfries.

Monfries added that many UK businesses would probably be surprised if they heard their tax compliance burden was relatively light.

‘There’s scope to reduce red tape further, particularly when it comes to employment taxes which make up a big chunk of compliance time. Our study suggests that for medium sized firms the time spent having to deal with the tax system can have a bigger potential impact on economic growth than the rate of tax,’ she said.