November 19, 2015

DOING BUSINESS 2016

Augusto Lopez-Claros, Director

Global Indicators Group

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What does Doing Business measure?

Doing Business indicators:

Focus on regulations relevant to the life cycle of a small to medium-size domestic business.

Are built on standardized case scenarios.

Are measured for the most populous city in each country, and the second largest business city in countries with more than 100 million inhabitants.

Are focused on the formal sector.

Doing Business DOES NOT measure all aspects of the business environment such as security, macro-economic stability, prevalence of bribery and corruption, level of training and skills of the labor force, proximity to markets, regulations specific to foreign investment or the state of the financial system.

The 11 areas of business regulation measured by Doing Business affect firms throughout their life cycle

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In getting a location• Dealing with

construction permits

• Getting electricity• Registering

property

At start-up• Starting a business• Labor market

regulation

In getting financing• Getting credit• Protecting

minority investors

In daily operations• Paying taxes• Trading across

borders

When things go wrong• Enforcing contracts• Resolving insolvency

Tax rates among the top obstacles that firms face across the developing world

• Based on Enterprise Surveys in 135 countries around the world

• Direct responses from representative samples of the private sector

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2.5

3.5

3.5

3.5

4.3

7.0

7.2

10.3

11.0

11.5

11.8

16.6

0 2 4 6 8 10 12 14 16 18

Business licensing and permits

Access to land

Customs and trade regulations

Tax administration

Crime, theft and disorder

Corruption

Inadequately educated workforce

Electricity

Political instability

Tax rates

Practices of the informal sector

Access to finance

Percent of firms identifying the problem as the main obstacle to their business activity, %

Sources: Doing Business database; World Enterprise Surveys.

The greater the difficulty of paying taxes, the more likely firms are to perceive corruption as a problem

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Note: The sample comprises 144 economies. The economies are grouped into quartiles by their distance to frontier score for paying taxes, which recorded on

ow common it is to make undocumented extra payments or bribes in connection with (1) imports and exports; (2) public utilities; (3) annual tax payments; (4) awarding of public contracts and licenses; and (5) obtaining favorable judicial decisions. The answers range from 1 (very common) to 7 (never occurs). The score for the corruption perceptions index relates to the degree to which corruption is perceived to exist among public officials and politicians by business people and country analysts. Score ranges between 100 (highly clean) and 0 (highly corrupt).

Sources: Doing Business database; World Economic Forum 2014, Transparency International 2014

0

10

20

30

40

50

60

70

0

1

2

3

4

5

6

7

Most difficult Least difficult

Score (0-100)Score (1-7)

Irregular payments and bribes Corruption perceptions index

more irregular payments

less corrupt

Economies scored by ease of paying taxes, quartiles

fewer irregular payments

more corrupt

Why do tax rates and tax administration matter?

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Taxes are the price we pay for a stable, more equitable society:

Funding for social programs and public investmentsKey to building effective government

But tax rates and burdensome tax administration remain top obstacle to business

Challenges:To choose level of tax rates and tax baseTo design tax compliance system that encourages taxpayerparticipation

What does the Paying Taxes indicator measure?

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• 3 indicators: time, payments and total tax rate for a local medium-size company to pay all taxes

Methodology

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• Paying Taxes measures tax cost and administrative burden of paying taxes for standardizedbusiness in its 2nd year of operation (2014):

Limited liability taxable company

100% domestically owned

Has 60 employees: 4 managers, 8 assistants and 48 workers

Performs general industrial or commercial activities

Does not participate in foreign trade

Has a turnover of 1,050 times income per capita

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Note: Data on Tax revenues (% of GDP) are for year 2012,. The Human Development Index in the HDR 2014 report is for 2013.

Sources: Doing Business 2016, World Bank Development Indicators Database, Human Development Report (HDR) 2014.

0%

10%

20%

30%

40%

50%

60%

Ireland Chile Uganda Poland RussianFederation

Côte d'Ivoire

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Human development index (HDI) Total tax rate (% of profit) Tax revenue (% of GDP)

Higher tax rates do not always lead to higher tax revenue or better welfare

High HDI

Low HDI

Strong convergence in tax compliance time across economies since 2004

694

491

211 194

0

100

200

300

400

500

600

700

800

Time to prepare, file and pay taxes (hours per year)

Worst Quartile

Best 3 Quartiles

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Source: Doing Business database

Good practices in Paying Taxes

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• Self-assessment systems make it possible to collect taxes earlier and reduce the likelihood of disputes over tax assessments. They also reduce opportunities for corruption.

• E-system for filing and paying taxes lightens the workload, reduces operational costs and time for tax administrations and increases tax compliance. For taxpayers, it saves time by avoiding errors and making it easier to prepare, file and pay taxes.

• The same tax treatment for taxes with the same tax base makes tax compliance convenient and easier.

Practice Economies* Examples

Allowing self-assessment

161Argentina, Canada, China, Rwanda, Turkey

Allowing electronic filing and payment

84Australia, Colombia, India, Mauritius, Tunisia

Having one tax per tax base

50Angola, Morocco, Namibia, Norway, Paraguay

Good practices around the world in making it easy to pay taxes

* Among 189 economies surveyed

Poland has 2 out of 3 good practices: self-assessment and e-system for filing and paying taxes

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Sources: Doing Business database; World Database.

Following Doing Business best practices would also significantly decrease the time to pay taxes

Not following best practices:

805.7 million days

47.6 million days

• In the 78 economies covered by both Doing BusinessEntrepreneurship Database, an estimated 31.7 million limited liability companies were in operation in 2014.

• Assuming that they followed the rules and regulations for paying taxes in their home economy as measured by Doing Business, these firms together spent 805.7 million days to file their taxes.

In countries that do not follow good practices, companies spend 17 times moretime to prepare, file and pay taxes

Potential time savings = 758.1 million days

Key findings of Paying Taxes in Doing Business 2016

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• Globally, the case study company needs on average 261 hours to comply with tax obligations.It has to make 26 payments per year and has an average total tax rate of 40.8%.

• In 2014, 40 economies made it easier or less costly to comply with tax obligations.

• Globally, the most common feature of tax reforms in the past year was the introduction orenhancement of electronic systems for filing and paying taxes. Eighteen economiesimplemented such changes:

Costa Rica Cyprus IndonesiaJamaica Malaysia MontenegroMorocco Mozambique PeruPoland Rwanda SerbiaSlovak Republic Spain TajikistanUruguay Vietnam Zambia

Reforms recorded in Paying Taxes in Doing Business 2016

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By 2014 eighty-four economies have a fully implemented electronic system for filing and paying taxes

15

30

20

14

8

5

5

2105

OECD high income (30 of 32)

Europe & Central Asia (20 of 25)

Latin America & Caribbean (14 of 32)

East Asia & Pacific (8 of 25)

Middle East & North Africa (5 of 20)

Sub-Saharan Africa (5 of 47)

South Asia (2 of 8)

Electronic system not available or notused by majority of businesses (105)

Note: Electronic system is counted where both filing and payment of taxes are done online and used by the majority of medium-size businesses.Source: Doing Business database

Over the past 5 years, Europe and Central Asia implemented the most reforms in electronic tax systems

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Note: The reforms shown for each year until 2014 are those recorded from June 1 of that year to June 1 of the following year. For 2014 the reforms shown are those recorded from January 1 to December 31 of that year.Source: Doing Business database

Reforms introducing or enhancing electronic system for filing and paying taxes

2010 2011 2012 2013 2014

East Asia & Pacific

Latin America & Caribbean

OECD high income

Sub-Saharan Africa

South Asia

Middle East & North Africa

Europe & Central Asia

In 2014, Serbia improved the most on making it easier for companies to comply with tax obligations

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Source: Doing Business database

67 payments

42 payments

230

240

250

260

270

280

290

2012.5 2013 2013.5 2014 2014.5

Tim

e (h

ou

rs p

er y

ear)

+13

0

10

20

30

40

50

60

70

80

90

100

Serbia improved its Paying Taxes DTF score from 48.9 in Doing Business 2015to 61.9 in Doing Business 2016

In 2014, Poland also made complying with tax obligations easier for companies

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Source: Doing Business database

19 payments

7 payments

260

270

280

290

300

2012.5 2013 2013.5 2014 2014.5

Tim

e (h

ou

rs p

er y

ear)

+7.5

0

10

20

30

40

50

60

70

80

90

100

Poland improved its Paying Taxes DTF score from 72.2 in Doing Business 2015to 79.6 in Doing Business 2016

OECD high income region has lowest number of payments and tax compliance time across all regions

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11 25 18 19 31 39 30177 201 216 233 299 309 3610

50

100

150

200

250

300

350

400

450

0

5

10

15

20

25

30

35

40

45

OECD highincome

East Asia &Pacific

Middle East &North Africa

Europe &Central Asia

South Asia Sub-SaharanAfrica

Latin America& Caribbean

Payments (number per year) Time (hours)

Source: Doing Business database

Poland is among the countries with lower tax payments

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4 8 9 7 8 11 883 110 218 271 275 277 4050

50

100

150

200

250

300

350

400

450

0

5

10

15

20

25

30

35

40

45

Norway UnitedKingdom

Germany Poland Portugal Hungary Czech Republic

Payments (number per year) Time (hours)

Source: Doing Business database

OECD high income region has a total tax rate close to the world average

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32.6 33.5 34.8 38.9 41.2 46.5 47.70.0

10.0

20.0

30.0

40.0

50.0

60.0

Middle East &North Africa

East Asia &Pacific

Europe &Central Asia

South Asia OECD highincome

Sub-SaharanAfrica

Latin America& Caribbean

Total tax rate (% of profit)

Total tax rate is close to the world average of 40.8%

Source: Doing Business database

Poland is among the countries with a total tax rate below the regional average

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32.0 39.5 40.3 41.0 48.4 48.8 50.40.0

10.0

20.0

30.0

40.0

50.0

60.0

UnitedKingdom

Norway Poland Portugal Hungary Germany Czech Republic

Total tax rate (% of profit)

Total tax rate is below the OECD average of 41.2%

Source: Doing Business database

Paying taxes in Poland in 2014 - Overview

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Tax Payments (number)

Payments required by

law (number)

Time (hours)

Statutory tax rate Tax base Total tax rate

(% of profit)

Value added tax (VAT) 1 12 98 23.00% value added not included

Transport tax 1 2 - PLN 1,408 owned truck 0.06

Property tax 1 1 -PLN 0.88/m2 of land and PLN 22.82/m2 of building

property area 0.93

Social security contributions 1 12 103 16.93% gross salaries 19.10

National disabled fund 1 12 - 40.65% x 6% x average salary per employee 2.83

Labor fund 0 12 - 2.45% gross salaries 2.76

Guaranteed employees' fund 0 12 - 0.10% gross salaries 0.11

Corporate income tax 1 12 70 19.00% taxable profit 14.48

Fuel Tax 1 1 - included in the price of fuel not included

Employee paid - Social security contributions

0 12 -22.75%

(7.75% credited against PIT)gross salaries not included

TOTAL 7 - 271 - - 40.3

Source: Doing Business database

Time to prepare, file and pay 3 major taxes in Poland in 2014

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Steps Corporate income tax

Labor taxes and contributions

Value added tax TOTAL

Prepare 48 38 82 168

File 2 41 6 49

Pay 20 24 10 54

TOTAL 70 103 98 271

Source: Doing Business database

Over the past decade, Poland simplified tax compliance

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41 743.2 40.3

420

271

0

100

200

300

400

500

0

10

20

30

40

50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Payments (number per year)

Time (hours)Total tax rate (% of profit)

Source: Doing Business database

Further opportunities to improve paying taxes

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•In Poland multiple labor contributions are levied on the same tax base. The same tax treatment

for taxes with the same tax base makes tax compliance convenient and easier.

•Companies in Poland pay three labor contributions on gross salaries –social security

contributions, contributions to labor fund, and contributions to Guaranteed employees' fund.

Good Practice example:

Employers in Sweden pay a single statutory social security contribution rate on behalf of their employees consisting of charges for pensions, health insurance and other social benefits. The employer-paid rate of social security contributions amount to 31.42% of gross salary.

•Focusing reform efforts to ease the administrative burden on taxpayers to file and pay taxes:

clearer rules and guidelines on taxes, less frequent changes to tax rules and further upgrade to

the software used by companies to calculate their tax liabilities.

THANK YOU!

Questions www.doingbusiness.org

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ANNEX

IMF 2015 consultation report

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The economy has recovered from the 2012–13 slowdown

• Real GDP growth reached to 3.4 percent in 2014 up from 1.7 percent in 2013 - supported by

strong domestic demand (accelerated wages, falling unemployment and declining

commodity prices).

• Investment benefited from robust credit growth and eased financial conditions.

• Poland has developed strong trade and financial linkages with the euro area exports to

the EU represent 75 percent of Poland’s exports.

• General government deficit declined to 3.2% of GDP in 2014 from 4.0%GDP in 2013

wage bill freeze, reduced debt servicing costs following changes to the pension system, and

a cyclical rebound in tax revenues.

• Nonetheless, inflation has been negative since July 2014.

Source: IMF Country Report No. 14/182, 2015 Consultation report

Continuing Fiscal Consolidation

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Fiscal consolidation has advanced further, allowing Poland to exit the EU’s Excessive

Deficit Procedure (EDP) one year early

• The fiscal deficit is expected to decline to around 2¾ percent of GDP in 2015 expected

increasing revenues, strong growth, and lower expenditures on social benefits as

unemployment declines.

Medium term recommendations:

• Reforming large taxpayer administration and establishing a single Large Taxpayer Office.

• Closing a 3rd of the VAT compliance gap could increase revenue by about 0.6% of GDP in

the medium term: (i) developing industry-based compliance projects, (ii) implementing

strategies to fight the shadow economy and (iii) improving the VAT administration, including

a VAT gap analysis.

• Reducing the number of VAT rates to improve compliance and lower the burden on tax

administration.

• Preventing the 2011 VAT increase from expiring in 2017 would help sustain revenues until

tax administration reforms are finalized.