Implementing online filing and payment systems continues to be a challenge for the African region, resulting in it having the highest number of payments and the second highest time to comply.
This is noted in the recently released “Paying Taxes 2020” report titled “The changing landscape of tax policy and administration across 190 economies”. Paying Taxes is a report jointly published by PwC and World Bank Group.
In Africa, it takes 285 hours to comply with tax payment, the Total Tax and Contribution Rate (TTCR) is 47.3percent, post-filing Index (PFI) is 56.2, while number of payments is 34.7.
Preparing and filing tax returns is only part of the tax compliance burden faced by businesses. Some of the most complex processes arise after returns have been filed.
The introduction of electronic systems for filing and paying taxes has cut tax compliance times globally. Electronic filing (e-filing) and electronic payment (e-payment) are the processes of submitting tax returns and payments over the Internet. E-filing and e-payment have various benefits that have made the tax preparation process easier for businesses, including the ability to file a tax return from one’s office at a convenient time and the ability to prepopulate tax returns with data already held by the tax administration. The United States was the first economy to introduce e-filing, in 1986, followed by Australia in 1987.
“Tax reform can be one of the toughest political challenges governments face. Any reform will inevitably create winners and losers, and the backlash is sometimes enough to sap the reformers’ resolve. Although the process is rarely without controversy, certain risks of tax reform can be mitigated by ensuring reforms are driven with four key principles in mind – stress certainty for business, consider the future, keep it simple, and establish principles”, said Amal Larhlid, partner, global fiscal policy, PwC UK.
According to her, “We will continue to see more tax reforms internationally as we move into a more globalised, technology-enabled world. Considering the key principles above when embarking on tax reform will assist with creating a tax system that operates and serves society as intended”.
Julian Sansum, partner, employment and equity, PwC UK said, “Considering the pace and scale of the changes we are witnessing in labour markets, it is clear that reforms to labour taxes and laws will continue to be pressing issues for governments all over the world.”
Having a robust tax system that promotes a sustainable taxpaying culture is an important element in any economy. A culture of voluntary compliance can be seen as a measure of taxpayer morale.
The Organisation for Economic Co-operation and Development’s (OECD’s) 2019 report on tax morale underscored the fact that transparency and communication with the public on the use of tax revenues are cornerstones of a sustainable tax system. How governments reform tax systems can significantly affect the profile of taxes borne by businesses.
In Paying Taxes, the Total Tax and Contribution Rate (TTCR) is used to measure how much tax businesses pay. This is defined as the sum of all the taxes and mandatory social contributions paid, expressed as a percentage of the company’s commercial profit.
Since 2014, the post-filing score has increased in 31 economies and has dropped in 10, the report noted.
When it comes to implementing online payments, tax authorities need to work with other organisations to ensure that payment systems are widely accepted and are available in a format that is convenient to the taxpayer, the report noted.
“The move to real-time systems can provide significant benefits for tax administrations, including greater control over taxpayer data and enhanced fraud prevention”, said Christoph Zenner, Partner, EMEA Indirect Tax Leader, PwC Belgium.
“If tax administrations and taxpayers are to reap the full benefits of online systems, proper implementation and administration is critical. The Paying Taxes data shows examples in which the full benefits of online systems have not been realised because, although they may have existed for some time, they are not used by the majority of taxpayers”, he added.
This will almost certainly require the involvement of banks and potentially telecommunications companies to ensure that Internet connections are reliable and that payments can also be made from mobile devices.
“Although governments always have the option of making online payments mandatory, if they do this before the necessary systems are in place and working reliably, they run the risk of increasing discontent with the tax system and potentially lowering the chances of people complying with their tax obligations in a timely manner”, the report stated.
Even though many of the top-line indicators that measure the ease of paying taxes have remained relatively stable over time, where economies have been unable to implement technology successfully, they continue to risk missing opportunities to make it easier and quicker for entities to comply with tax obligations and for governments to monitor that compliance.
There are two main reasons for increases in the number of payments: the introduction of new taxes and the increasing frequency of filing and paying existing taxes.
For all governments, the administration of tax is a priority. Paying tax is one of the most universal, frequent and potentially contentious interactions that citizens have with their government. It can affect, and be affected by, an individual’s broader perception of government.
“Over the 15 years that Paying Taxes has been comparing tax systems globally, we have seen substantial improvements in the ease of paying taxes, driven largely by advances in technology.
“As with many other areas of society, progress has not been universal or uniform, and this is reflected in the results. Even though many of the top-line indicators that measure the ease of paying taxes have remained relatively stable over time, where economies have been unable to implement technology successfully, they continue to risk missing opportunities to make it easier and quicker for entities to comply with tax obligations and for governments to monitor that compliance. As before, we have used a medium-sized case study company as the basis for these comparisons and findings”, according to Rita Ramalho, Senior Manager, Global Indicators Group, World Bank Group, and Andrew Packman Leader, Tax Transparency and Total Tax Contribution, PwC UK.
Ease of filing and paying tax. This year, at a global level, there are modest improvements in the administrative ease of paying taxes. In certain economies, however, digital technologies have led to more substantial improvements.
Total Tax and Contribution Rate. Globally, the Total Tax and Contribution Rate (TTCR) has also remained relatively stable for a decade, with only small changes in most economies. This suggests that there isn’t a ‘race to the bottom’ as governments compete for investment.
Iheanyi Nwachukwu
