tax at a glance for eca countries - world bank€¦ · tax at a glance for eca countries the world...

Tax aT a Glance for eca counTries

THE WORLD BANK

THE WORLD BANK1818 H Street, NWWashington, DC 20433

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THE WORLD BANK


WB tax at glance 8-29-13.indd 1 8/29/13 6:12 PM

iii

Contents

Acknowledgments .........................................................................................................................................................v

1. Introduction ...............................................................................................................................................................1

2. Methodology and Limitations ..................................................................................................................................3

3. Government Tax Revenue ........................................................................................................................................5

4. Key Features of the Tax System ................................................................................................................................7Value-added Tax (VAT) ................................................................................................................................................7Corporate Income Tax (CIT) .........................................................................................................................................8Personal Income Tax (PIT) ............................................................................................................................................8The Ease of Paying Taxes .............................................................................................................................................8

5. Organizational Structure of Tax Administration ...................................................................................................11

6. Typical Weaknesses in Tax Administration ............................................................................................................13Tajikistan ..................................................................................................................................................................13Armenia ....................................................................................................................................................................13

7. Challenges in Tax Policies in ECA Countries ..........................................................................................................15

References ....................................................................................................................................................................75

FiguresFigure 1 Tax Revenue and Per Capita Income in ECA Countries, 2011 ......................................................................5Figure 2 VAT Productivity and Per Capita Income in 2011 (Selected Countries) .........................................................7Figure 3 Trend of the average time to comply 2007–2013 (Ukraine, Belarus, and Azerbaijan) .................................10Figure 4 Selected Comparator Economies Rank on the Ease of Paying Taxes in 2013 ..............................................10

TablesTable 1 VAT Performance in 2011 (Selected Countries) .............................................................................................7Table 2 CIT Performance in 2011 (Selected Countries) ..............................................................................................8Table 3 PIT Performance in 2011 (Selected Countries) ...............................................................................................9Table 4 Paying Taxes (Doing Business 2013) .............................................................................................................9

TaaG Country BriefsAlbania .....................................................................................................................................................................19Armenia ....................................................................................................................................................................21Azerbaijan ................................................................................................................................................................23Belarus ......................................................................................................................................................................25Bosnia and Herzegovina ............................................................................................................................................27Bulgaria ....................................................................................................................................................................Croatia .....................................................................................................................................................................

29


31

Czech Republic .........................................................................................................................................................

3

Estonia ......................................................................................................................................................................33

Georgia ....................................................................................................................................................................35

Hungary ....................................................................................................................................................................37

Kazakhstan ...............................................................................................................................................................39

Kosovo .....................................................................................................................................................................41

Kyrgyz Republic ........................................................................................................................................................43

Latvia .......................................................................................................................................................................45

Lithuania ...................................................................................................................................................................47

Macedonia ................................................................................................................................................................49

Moldova ...................................................................................................................................................................51

Montenegro .............................................................................................................................................................53

Poland ......................................................................................................................................................................55

Romania ...................................................................................................................................................................57

Russian Federation ....................................................................................................................................................59

Serbia .......................................................................................................................................................................61

Slovak Republic .........................................................................................................................................................63

Slovenia ....................................................................................................................................................................65

Tajikistan ..................................................................................................................................................................67

Turkey ......................................................................................................................................................................69

Ukraine .....................................................................................................................................................................71


7

v

Acknowledgments

The “Tax-at-a-Glance”(TaaG) has been prepared under the auspices of the TAXGIP (Tax Administrators Global Innovative Practices), which provides opportunities for peer learning and exchanging knowledge and experi-ence on good practices among tax officials and tax experts. The TAXGIP activities are currently funded by the Russian Federation’s Ministry of Finance Trust Fund dedicated to public finance management reforms in the Europe and Central Asia (ECA) region of the World Bank. We are grate-ful to the Russian Ministry of Finance and the administra-tors of this Russian trust fund, Ivor Beazley, Maya Gusarova and Maria Ovchinnikova, for supporting TAXGIP, and TaaG in particular.

The TaaG project was designed and directed by Munaw-er Khwaja (ECSPE). Xuan Yang, consultant for the World Bank, conducted the research on the various databases and other country information and designed the layout for the TaaG brief. The TaaG brief gives a 2-page overview of the tax policy and tax administration system as well as main trends in tax reform for each ECA country. The “Tax-at-a-Glance” has been compiled using data from the ECA Mac-roeconomic database, Doing Business, BEEPS and country project information as well as information supplied by the respective country economists.

We would like to acknowledge the significant contribution made to this brief by all the country economists in provid-ing information on current reforms being undertaken in their respective countries and for verifying the accuracy of data and other information. Special thanks are due to Xuan Yang for her tireless work in compiling all the information and getting feedback from country economists and other sources. We would also like to acknowledge the important role of the ECA country directors and country managers who whole-heartedly backed this effort. We would like to acknowledge the contribution made by Pankhuri Dutt and Virginia Yates for providing editorial support.

We would like to thank the following expert reviewers for their contribution in helping finalize the study: Raul Felix Varela-Junquera (LCSPS), Edgardo Mosqueira (LCSPS), Svetlana Budagovskaya (ECSPE), Sanja Madzarevic-Su-jster (ECSPE), Lazar Sestovic (ECSPE), Kiryl Hajduk (ECSPE) and Francis Rowe (ECSPE). Finally we would like to thank Yvonne Tsikata, Sector Director for ECA PREM, as well as Adrian Fozzard and William Dorotinsky, current and former Sector Managers, respectively, for ECA Public Sector and Institutional Reforms, for their guidance and encourage-ment in this endeavor.


for Exchange

1

1. Introduction

The Tax-at-a-Glance provides a 2-page overview of the tax policy and tax administration system as well as main trends in tax reform for each ECA country. This Tax-at-a-Glance is intended as a brief on current tax systems within ECA countries as they attempt to establish effective and fair tax systems. It is also intended as a handbook for World Bank staff to evaluate tax systems, policy and administration is-sues and serves a good guide for benchmarking tax rates and tax administrations.

Governments need sustainable funding for social programs and public investments to promote economic growth and development.1 Taxation is an important practical tool used to raise revenue to finance government spending on goods and services that its people need. Setting up an efficient and fair tax system is of great importance for a country to raise revenue and enhance its economic performance.

In the Eastern Europe and Central Asia (ECA) region, two historic transitions since 1990 (a political transition from totalitarianism toward democracy and an economic transi-tion from socialism toward free market systems) required a fundamental change in the role of the state, from control-ling virtually all major economic assets to providing public goods and facilitating a largely privately-owned competi-tive economy. This change in the role of the state required a major downsizing and reorientation of public spending and a complete overhaul of tax policy and administration.2

Formidable challenges existed in setting up an efficient and fair tax system in ECA. First, voluntary compliance and self-filing, two important pillars in a modern tax system, were completely absent (Martinez-Vazquez & McNab, 2000). Sec-ond, tax evasion reached a high level due to the inefficiency and weak management of the tax administration. Third, in-come was unevenly distributed within ECA countries. The economic and political power of rich taxpayers prevented tax reforms and this partially led to inefficient and unfair tax systems. Fourth, tax administration was very inefficient, with a poorly educated and poorly trained staff. Modern technologies had not been fully deployed in tax offices.

Over the past fifteen years, many ECA countries have un-dertaken structural and administrative reforms to be more efficient in attracting investment and fostering economic growth. This included cutting personal and corporate in-come tax rates, broadening tax bases, improving tax com-pliances, introducing electronic filing systems to improve tax efficiency, as well as increasing tax revenues. Certain notable improvements had been shown but further and better improvements were still needed.

1 See: http://doingbusiness.org/data/exploretopics/paying-taxes/why%20matters.

2 See:http://siteresources.worldbank.org/INTECA/Resources/ 257896182288383968/FiscalPolicy&EconomicGrowthinECA_Over-view.pdf.


3

2. Methodology and Limitations

The data for Tax-at-a-Glance comes from various sources: IFC Doing Business, IMF Government Finance Statistics 2012, and ECA Fiscal Database. The information for the ease of paying taxes in 2013 and datasheet on payments (numbers per year), time (hours per year) and total tax rate (percent profit) for Eastern Europe and Central Asia coun-tries from 2006 to 2013 were collected from the World Bank Doing Business database. The second source of data on total revenues, tax revenues and budget balance (as per-centage of GDP) from 2006 to 2011 were collected from IMF Government Finance Statistics (GFS) 2012 and the ECA Fiscal Database. GFS data was described and analyzed for the years from 1995 through 2011 in five major categories within consolidated general government: (a) government revenue and expenditure; (b) government deficit; (c) gov-ernment financing; (d) other economic flows in govern-ment assets and liabilities; and (e) government balance

sheet. The third source of data on VAT, CIP, and PIT perfor-mance within 14 selected countries in ECA were collected from World Bank internal documents. The fourth source of additional data on tax administration size and tax revenue components (as percentage of total revenue) within con-solidated general government in 2011 was collected from World Bank country economists. Complimentary sources are from individual MOF websites, IMF Fiscal Monitor 2012, and IMF Article IV 2012.

Due to administrative and financial limitations, statistical and tax offices have difficulty in providing reliable statistics. Fur-thermore, low level of transparency in several tax adminis-trations in ECA countries makes it harder to collect accurate information on tax performance. The poor quality of data often prevents policymakers and economists from assessing potential problems and challenges to existing tax systems.


5

3. Government Tax Revenue

In 2011, tax revenues (including so-cial contributions) accounted for over 76.8% of total general govern-ment revenue in Eastern Europe and Central Asia. Tax revenue made up 26.4% of GDP in 2011, following three years of decline from 2008 to 2010 (23.8%, 22.5% and 22.3%). The ratio of tax revenue to GDP in the Eastern Europe area (EU-11) was slightly higher than the Central Asia area, at 30.3%. As figure 1 shows, countries with higher per capita in-come tend to have larger tax to GDP ratio. In EU-11 the ratio of tax rev-enue to GDP for 2011 was highest in Slovenia, Hungary and Czech Re-public (37.5%, 37.1% and 34.5%, respectively), and lowest in Lithuania (26.4% of GDP) and Croatia (20.1% of GDP). In non-EU countries, the three highest were Bosnia & Herzegovina, Ukraine, and Serbia (38.4%, 37.1% and 34.3%, respectively in 2011). The lowest two were Azer-baijan (12.8% of GDP in 2011) and Uzbekistan (17.0% of GDP in 2011). The most recent data shows that tax revenue in major industrialized countries (members of the Organiza-tion for Economic Cooperation and Development or OECD) is about double the tax level in a representative sample of ECA countries.3

When it comes to the composition of tax revenue, both ef-ficiency (whether the tax increases or decreases the overall welfare of taxpayers) and equity (whether the tax is fair to every taxpayer) are of major concern. Data from OECD and ECA countries show that the ratio of income taxes to consumption taxes in industrial countries has always been more than double the ratio in ECA countries. An IMF study shows that there is a notable difference in the ratio of cor-porate income tax to personal income tax. OECD countries raise more than three times as much from personal income

tax than from corporate income tax. This disparity is mainly due to differences in wage income, tax administration man-agement and the political power of the richest component of the population between these two groups (Vito Tanzi & Howell Zee, 2001). The prevalence of a very regressive flat tax for personal income tax in most CIS countries is another major reason.

Although it is difficult to draw any accurate policy recom-mendations from global comparisons in terms of the in-come tax-consumption tax mix, a relevant economic devel-opment tendency can be seen by this comparison. There may be a shift in the composition of revenue from con-sumption taxes to personal income taxes. A good tax policy for ECA, however, should not only consider the shift in the income tax-consumption tax mix, but also the economic results (both efficiency and equity) from the shift.

FIGURE 1 TAX REVENUE AND PER CAPITA INCOME IN ECA COUNTRIES, 2011

0

Tax

reve

nu

e (%

of

GD

P)

GNI per capita Atlas method (Current US$)

5,000 10,000 15,000 20,000 25,000

45

Bosnia and Herzegovina

Serbia

Hungary

Czech Republic

MontenegroArmenia

Uzbekistan

Tajikistan

Moldova

Bulgaria

Albania

KyrgyzRepublic

Poland

Slovenia

Russia

Estonia

LatviaLithuania

Macedonia

Azerbaijan

Belarus

Romania

Kazakhastan

Ukraine

Georgia

Turkey Croatia

Slovak

0

5

10

15

20

25

30

35

40

source: World Bank eca fiscal Database 2011.

3 Note: All data come from World Bank Database.


7

4. Key Features of the Tax System

Table 1 VAT Performance in 2011 (Selected Countries)

Statutory VAT RateVAT Revenue Yield

(% of GDP) VAT Productivity

Albania 20% 9.1 0.46

Armenia 20% 8.1 0.41

Azerbaijan 18% 4.4 0.24

Belarus 20% 8.9 0.45

Kazakhstan 12% 3.2 0.27

Kosovo 16% 11.1 0.69

Kyrgyz Republic 12% 7.5 0.63

Macedonia 18% 9.1 0.51

Moldova 20% 12.7 0.64

Russia 18% 6.0 0.33

Serbia 18% 10.4 0.58

Tajikistan 18% 9.3 0.52

Turkey 18% 6.3 0.35

Ukraine 20% 9.0 0.45

source: World Bank staff calculations.

FIGURE 2 VAT PRODUCTIVITY AND PER CAPITA INCOME IN 2011(SELECTED COUNTRIES)

0

VA

T Pr

od

uct

ivit

y

GNI per capita Atlas method (Current US$)

5,000 10,000 15,000 20,000 25,000

0.8

Serbia

Kosovo

Armenia

Tajikistan

Moldova

Albania

KyrgyzRepublic

Russia

Macedonia

Azerbaijan

Belarus

Kazakhastan

Ukraine

Turkey

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

source: World Bank Database 2011.

A well-designed tax system can be most effective in financing needed public expenditures in a sustainable way. For the Tax-at-a-Glance we have analyzed the productivities of the three main tax types generally used in ECA: the Value-added Tax (VAT), Corporate Income Tax (CIT) and Personal Income Tax (PIT). Tax productivity is equal to the tax as a percent of the tax base (GDP or con-sumption) divided by the standard tax rate. For VAT productivity, the base used is total consumption. For PIT and CIT, the base used is GDP. In an ideal world, productivity will be 100 if the entire base is taxed, there are no exemptions and there is no leakage of revenue from tax evasion.

The analysis of productivities of the Value-added Tax (VAT), Corporate In-come Tax (CIT) and Personal Income Tax (PIT) reveal some interesting re-sults and potential problems within the tax system.

Value-added Tax (VAT)In terms of VAT productivity, Azer-baijan had a VAT productivity of 0.24 and Kazakhstan 0.27, and both were among the lowest in Europe and Central Asia. Both also have large revenues from the petroleum sector which may reduce the incen-tive to improve the productivity of VAT. Especially in Azerbaijan, its 4.4 percent revenue yield was relatively low from the standpoint of a statutory VAT rate of 18 per-cent. Figure 2 shows that in ECA, countries with lower per capita GDP tend to have higher productivity. This fur-ther implies that there may be significant tax loopholes in resource rich countries. Improving the performance and administration of the VAT should be of great importance

for resource rich countries. A broadening of the tax base, better compliance rate and better VAT administrative per-formance will be areas on which countries with low VAT productivity should focus (OECD, 2012, “Consumption Tax Trends 2012 VAT/GST and Excise Rates, Trends and Administration Issue”, p104).


8 The Status of Contract Enforcement in Poland

Corporate Income Tax (CIT)In terms of CIT productivity, Kazakh-stan was at 0.41, which was among the highest in Europe and Central Asia (Table 2). This indicates that, contrary to VAT, its CIT was performing quite well. Notably, Kazakhstan’s relatively high CIT productivity was mainly due to its relatively high CIT revenue yield (8.2% of GDP), which certainly ben-efited from large oil and gas compa-nies in Kazakhstan. The Extractive Industries Transparency Initiative (EITI) 2011 report mentions that “revenues from Tengiz, the sixth largest oil field in the world, and Karachaganak, Ka-zakhstan’s largest gas condensate field, together generated 50% of the revenues from oil and gas in 2011.”4 Tajikistan (0.06), Moldova (0.06) and Macedonia (0.08) however, were among the lowest in the region. Especially in Tajikistan, the statutory CIT rate was 25 percent, which was high relative to the 1.4 percent revenue yield. This was not only due to a very weak CIT tax administration, but also due to difficulties with collecting taxes from informal sec-tors as well as from small and medium-sized firms.

According to IFC Enterprise Surveys in 2011, 86 percent of firms in Tajikistan were small and medium-sized.5 Agricul-ture was the mainstay of Tajikistan’s economy, accounting for 24 percent of GDP, 66 percent of employment, 26 per-cent of exports, and 39 percent of tax revenue.6 Also, in Tajikistan, in the year 2011, a 15% CIT rate was set for the industry sector and 25% CIT rate for all others. This notable difference in CIT rates may generate an inequality problem within the country. Along with a complex and non-trans-parent tax system, it may increase the possibility of unfair-ness and corruption. Tax reform remains a high priority of the Government of Tajikistan. A US$ 18 million World Bank grant will support reforms aimed at improving the efficiency and effectiveness of the tax system in Tajikistan.7

Personal Income Tax (PIT)In terms of PIT productivity, it is noticeable that personal income tax revenue yield was generally low among coun-tries in Eastern Europe and Central Asia. PIT, as a direct tax on individual, rather than an indirect tax on transactions, actually depends more on tax administration performance. Thus, many of these personal income tax problems are mainly due to poor tax administration and corruption. Also, in some countries, the top marginal personal income tax

rate exceeds the corporate income tax rate by a significant margin (See OECD Tax Database),8 and this leads to the fact that many taxpayers will choose the corporate form of doing business for tax savings and therefore escape the highest personal income tax. This can result in a tax evasion problem, and thus, good tax policy should ensure that the top marginal personal income tax rate does not differ sig-nificantly from the corporate income tax rate.

The Ease of Paying TaxesAn efficient tax system is not just about setting appropri-ate tax rates and higher tax productivity, but also tax rules which are simple and easy to comply with. Thus, a compari-son of the ease of paying taxes in different countries, using the World Bank’s Doing Business Indicators, would give us an overall picture of the tax performance in Eastern Europe and Central Asia and encourage countries to learn from each other’s best practices.

According to the Doing Business methodology, Paying Taxes records the taxes and mandatory contributions that

Table 2 CIT Performance in 2011(Selected Countries)

Statutory CIT

RateCIT Revenue Yield (%

of GDP)CIT

Productivity

Albania 10% 1.5 0.15

Armenia 20% 2.6 0.13


Belarus 24% 3.1 0.13


Kosovo 10% 1.2 0.12



Moldova 12% 0.7 0.06

Russian Federation 20% 4.2 0.21

Serbia 10% 1.2 0.12


Turkey 20% 1.9 0.10

Ukraine 25% 4.1 0.16

source: World Bank staff estimates.

4 See: http://eiti.org/news/oil-and-gas-revenues-steadily-increasing-kazakhstan

5 See: http://www.enterprisesurveys.org/~/media/FPDKM/EnterpriseSur-veys/Documents/Country%20Notes/Tajikistan-09.pdf

6 See:http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/europe+middle+east+and+north+africa/ifc+in+europe+and+central+asia/countries/improving+business+environment+for+agribusiness+in+tajikistan

7 See: http://www.worldbank.org/en/news/press-release/2013/02/07/world-bank-launches-project-for-improvement-in-tajikistans-tax-administration.

8 See: http://www.oecd.org/tax/tax-policy/oecdtaxdatabase.htm.


94. Key Features of the Tax System

a medium-size company must pay in a given year and also measures the administrative burden of pay-ing taxes and contributions. It does this with three indicators: payments, time, and the total tax rate borne by a case study firm in a given year. The number of payments indicates the frequency with which the company has to file and pay different types of taxes and contributions, adjusted for the way in which those payments are made. Where full electronic fil-ing and payment is allowed and it is used by the majority of medium-size businesses, the tax is counted as paid once a year even if filings and pay-ments are more frequent. The sparse use of e-filing in Serbia, Tajikistan and the Kyrgyz Republic gives rise to the high numbers of payments, (66, 69, and 51 payments respectively) as payments are made manually for each tax.9

The time indicator captures the num-ber of hours it takes to prepare, file and pay the three major types of tax-es: profit taxes, consumption taxes, labor taxes and mandatory contribu-tions. The total tax rate measures the tax cost borne by the standard firm.10

Efforts to simplify the tax compliance process, mainly by the implementa-tion of electronic filing and payment, usually reduce the time required to comply taxes. Electronic systems for filing and paying taxes eliminate ex-cessive paperwork and interaction with tax officers. They can reduce the time businesses spend on complying with tax laws, increase tax compli-ance and reduce the cost of revenue administration.”11

As shown in Figure 3, over the past seven years, the economies that have reduced the compliance burden with the largest reduction in their time to comply were Ukraine, Belarus, and Azerbaijan.

In Ukraine the hours to comply fell to 491 in Paying Taxes 2011 from 2,085 in 2004. Paying Taxes 2013 report points out that “the main drivers for this fall were the increased

9 See: http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Special-Reports/Paying-Taxes-2013.pdf.

10 See: http://www.doingbusiness.org/data/exploretopics/paying-taxes/what%20measured.

11 See: http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB13-Chapters/Paying-taxes.pdf

Table 3 PIT Performance in 2011(Selected Countries)

Statutory PIT

RatePIT Revenue

Yield (% of GDP) PIT Productivity

Albania 10% 2.1 0.21

Armenia 25% 2.2 0.09


Belarus 12% 3.2 0.27


Kosovo 10% 1.2 0.12



Moldova 7% 2.2 0.31

Russian Federation 13% 3.7 0.28

Serbia 15% 4.6 0.31


Turkey 35% 3.6 0.10

Ukraine 15% 4.7 0.31

source: World Bank staff estimate

Table 4 Paying Taxes (Doing Business 2013)

Payments

(number per year)Time

(hours per year)Total tax rate

(% profit)

Albania 44 357 38.7

Armenia 13 380 38.8

Azerbaijan 18 214 40.0

Belarus 10 338 60.7

Bosnia and Herzegovina 44 407 24.1

Bulgaria 15 454 28.7

Croatia 18 196 32.8

Cyprus 28 147 23.0

Georgia 5 280 16.5

Kazakhstan 7 188 28.6

Kosovo 33 164 15.4

Kyrgyz Republic 51 210 68.9

Latvia 7 264 36.6

Lithuania 11 175 43.7

Macedonia, FYR 29 119 9.4

Moldova 48 220 31.2

Montenegro 29 320 22.3

Romania 41 216 44.2

Russian Federation 7 177 54.1

Serbia 66 279 34.0

Tajikistan 69 224 84.5

Turkey 15 223 41.2

Ukraine 28 491 55.4

Uzbekistan 41 205 98.5

source: ifc Doing Business 2013.



use of both electronic filing and electronic registers for various taxes. Belarus implemented electronic sys-tems in 2008 while an online tax portal became fully operational in 2009, and by 2011, the majority of companies in Belarus were seen to be taking advantage of various elec-tronic facilities available for tax com-pliance. In Azerbaijan, the introduc-tion to online filling and payment, and the introduction of accounting software to assist with the calcula-tion of payments had helped reduce its total number of hours from 756 in 2004 to 214 in 2013.”12

The rankings among countries on the Ease of Paying Taxes are evalu-ated based on three indicators dis-cussed above. As shown in Figure 4, the Doing Business 2013 Report ranked Tajikistan only 175th with ECA av-eraging 95th out of 183 countries in terms of the ease of paying taxes. This very low ranking of Tajikistan once again indicates that tax reform is a high priority of the Government of Tajikistan. On the request of the Gov-ernment of Tajikistan, the World Bank is supporting the Tajikistan Tax Administration Reform Project which aims

to improve the quality of taxpayer services, enhance the level of voluntary compliance, and reduce the size of the shadow economy.13

FIGURE 3 TREND OF THE AVERAGE TIME TO COMPLY 2007–2013 (UKRAINE, BELARUS, AND AZERBAIJAN)

Time (hours per year) Time (hours per year) Time (hours per year)

2,100

1,800

1,500

1,200

900

600

300

0

2007

2008

2009

2010

2013

2012

2011

1000

800

600

400

200

0

UA ECA EU-1120

07

2008

2009

2010

2013

2012

2011

BY ECA EU-11

2007

2008

2009

2010

2013

2012

2011

AZ ECA EU-11

1,200

1,000

800

600

200

400

0

source: ifc Doing Business.

FIGURE 4 SELECTED COMPARATOR ECONOMIES RANK ON THE EASE OF PAYING TAXES IN 2013

1

Rank

183

KZ

TJ

KG

UA

UZ

MD

ECA

AZ

RU

17

64

76

95

109

161

165

168

175

source: ifc Doing Business 2013.

12 See: http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB13-Chapters/Paying-taxes.pdf

13 See: http://www.worldbank.org/en/news/press-release/2013/02/07/world-bank-launches-project-for-improvement-in-tajikistans-tax-administration


11

5. Organizational Structure of Tax Administration

In terms of organizational structure of tax administration in ECA, most of the countries now have Large Taxpayer Units. Also, eight countries—Serbia, Ukraine, Hungry, Slo-venia, Slovak Republic, Bulgaria, Romania and Turkey—have established semi-autonomous revenue authorities to administer tax collections while in other twenty countries, tax administration is still part of the ministry of finance. Moreover, in terms of the ratio of number of field tax of-fices to population (million) in 2011, the three highest were Croatia (33 field offices per million), Serbia (24 field offices

per million) and Czech Republic (21 field offices per mil-lion), and the four lowest shares were recorded in Azerbai-jan (2 field offices per million), Lithuania (3 field offices per million), Latvia (4 field offices per million), and Bulgaria (4 field offices per million). In general, there is a trend moving to virtual offices from traditional territory offices. This also helps reduce physical contact between the tax administra-tion and taxpayers and thus reduces the avenues for cor-ruption and collusion.


13

6. Typical Weaknesses in Tax Administration

In 2012, the World Bank launched two new Tax Adminis-tration Reform Projects separately in Tajikistan and Arme-nia. The diagnostics done for these projects highlight the key problems in tax administration and show how the gov-ernments in both countries are addressing them.

TajikistanTax administration—key problems: The World Bank project appraisal on Tajikistan (“Tax Administration Re-form Project in Tajikistan”, 2012) identified that, “ there are an excessive number of field offices with insufficient staffing that creates problems for providing timely and professional processing of different types of taxes. The Tax Committee has a staff of 1,760, working in 79 of-fices including the central headquarters, a large taxpayers inspectorate (LTI) with 4 sub-offices, Dushanbe city office with 4 district offices, Sogd regional office with 18 district offices, Khatlon regional office with 25 district offices, Badakhshan regional office with 9 district offices and 13 district offices reporting directly to the central headquar-ters. Notably, about a third of the offices do not have their own premises and lack office equipment. Second, due to the complexity of tax legislation, the demand for taxpayer services is high. Yet the provision of these ser-vices is minimal. More than 75 percent of field tax offices lack skilled tax staff to satisfy growing taxpayers’ demand for services. Third, Tajikistan faces substantial challenges in revenue collection because of low capacity of the Tax Committee (TC) to detect tax evasion and locate non-filers and weak capacity of the MOF to do good qual-ity tax policy analysis, forecasting and policy formulation. A complex tax regime with a large number of nuisance taxes and reportedly corrupt practices by tax officials raise the compliance costs for taxpayers and undercut the busi-ness climate and private sector growth. At the same time, there are tax privileges and exemptions for some favored industry sectors.”14

Government—reform efforts: Efforts include: (i) pay-ments through banks; (ii) introducing on-line reporting option for tax filings; (iii) business registration has been greatly simplified; (v) internal control has been improved and performance evaluation system of local inspectorates has been developed; (vi) development of communication networks is in progress; (vii) electronic kiosks to simplify

tax payments is being introduced and (viii) the system for the taxation of small enterprises has been simplified.”.15 A major overhaul of the Tax Code has reduced many nui-sance taxes.

ArmeniaTax administration—key problems: According to the PAD for the Tax Administration Reform Project in Arme-nia 2012, “the biggest problem within Armenia is the high compliance costs for taxpayers. The IFC Paying Taxes 2011 report ranked Armenia only 153rd out of 183 coun-tries with regard to the ease of paying taxes. Based on the results of a recent compliance cost survey conducted by the IFC, the aggregate cost of Armenia’s tax compliance is equal to about 0.3 percent of GDP. While compliance costs account on average for about 5.4 percent of annual turn-over, small firms (with annual turnover of less than AMD 5 Million) which are particularly vulnerable to informality are estimated to spend as much as 17.5 percent of their turnover on tax compliance. Furthermore, business surveys have regularly identified weaknesses in tax administration, as well as arbitrary and corrupt behavior by tax officials, as major impediments to the formation and success of small and medium enterprises.”16

Government — reform efforts: The reform efforts aim to improve taxpayer compliance and broaden tax bases, while enhancing the business climate through more efficient tax procedures that reduce compliance costs for taxpayers. In 2011, the Government adopted a strategic document to guide tax administration reforms from 2011–14. The key interrelated elements of this strategy are as follows: (1) Removing barriers for taxpayers to fulfill their obliga-tions through simplified procedures, including e-filing, and enhanced taxpayer services; (2) Business process re-engi-neering and modernization of core information technology IT systems, including integration of data bases, centralized data processing, back-up and business continuity capa-

14 Source: Document of the World Bank: Tax Administration Reform Proj-ect in Tajikistan (Report No: 71924-TJ), Oct 2, 2012

15 Source: Document of the World Bank: Tax Administration Reform Proj-ect in Tajikistan (Report No: 71924-TJ), Oct 2, 2012

16 Source: Document of the World Bank: Tax Administration Reform Proj-ect in Armenia (Report No: 66710-AM), May 23, 2012



bilities; (3) Improved compliance management through modern risk based and (computerized) audit selection and targeted enforcement activities based on amount of rev-enue at stake and risk incurred; (4) Performance oriented management of human resources to improve efficiency and effectiveness of the State Revenue Committee, includ-

ing skill development and introduction of internal control mechanisms.”17

17 Source: Document of the World Bank: Tax Administration Reform Proj-ect in Armenia (Report No: 66710-AM), May 23, 2012.


15

7. Challenges in Tax Policies in ECA Countries

Based on the challenges facing ECA countries, certain gen-eral policy recommendations should be considered to move countries in the region toward more efficient and fairer tax systems. First, tax policies should be designed to address the tax compliance problem. In the last decade, several ECA countries have tried to simplify their tax systems, which may have contributed to an increase in overall tax compli-ance and reduction of the tax compliance costs (Hayoz & Hug, 2007). As Casanegra de Jantscher et al. (1992) point-ed out several years ago, “a major challenge for countries in transition will be to develop tax systems that facilitate, rather than complicate compliance” (p. 140).18 Tax compli-ance costs are still relatively high and the filings of various taxes and their processes are complicated in the region.

Second, tax policies should be designed to address the problem of low productivity of Personal Income Tax in ECA countries. Therefore, rationalization of the personal income tax structure is necessary. This includes moving it towards a more comprehensive broad-based income tax. Because of the flat rates for personal income tax in many ECA coun-tries, the tax wedge at the lower income levels is excessively high, raising concerns of fairness and equity. The issue of fairness should also be taken into consideration (Richard M. Bird, 2009).

Third, skilled staff should be hired to provide better analy-sis, modeling, monitoring and forecasting. Training oppor-tunities should be given to tax professionals and institu-tional knowledge-sharing should be made available. This would facilitate the exchange of experience and improve the implementation of best practices. Moreover, in order to improve voluntary compliance level, various options can be adopted. For instance: introducing risk management, enhancing taxpayer education and services, expanding e-

filing and e-payment possibilities and undertaking perfor-mance feedback surveys of taxpayers.

When it comes to tax administration, there is a need for polit-ical will to accept reforms and recognize the challenges ECA countries face. To begin with, the problem of tax fraud and corruption has to be recognized and effectively addressed. Also, governments have to adopt strategies of continuous efficiency improvements, increasing resources dedicated to planning, improvement on accountability and transparency. Besides, they need resources to invest in acquiring capable tax professionals and in modern technologies to make it eas-ier to file and pay taxes. Tax officials and taxpayers should be exposed to modern computer systems and new web-based services, such as e-filing and taxpayer account. Moreover, they need to improve data exchange between the tax ad-ministration, government and other enforcement agencies to ensure reliable and accurate third party information and MIS. The lack of a robust MIS prevents policymakers from accurately evaluating the current tax system.

In order to address the tax administration challenges, three major tax policy measures can be recommended. First, make compliance easier for the taxpayer by introducing an easy registration system and electronic filing process (Richard M. Bird, 2010). Second, control and minimize corruption among tax officials by limiting direct contact and by enhancing man-agerial supervision of tax officials. Third, provide a mecha-nism for detecting tax evasion and fraud by introducing a well-developed data mining information matching systems.

18 http://elibrary.worldbank.org/docserver/download/5911.pdf?expires=1366411774&id=id&accname=guest&checksum=A8922B8BAC2D97FE677D7229AF1FC435.


17

TaaG Country Briefs


Year: 2012

VAT rate: 20% (Standard) 10% (Reduced)

VAT threshold: 50,000 (US$ equiv.)

CIT rate: 10%

PIT rate: 10%

Population: 3.2 million (Year: 2011)

GDP Per Capita (Current US$): 4,030 (Year: 2011) Upper middle income

Country profile

Year: 2011

Tax as % of GDP: 23.1%

Non-tax as % of GDP: 1.7%

VAT % in GDP: 9.1%

CIT % in GDP: 1.5%

PIT % in GDP: 2.1%

Excise % in GDP: 3.1%

Social contributions % of GDP: 4.3%

Public debt % of GDP: 59.4%

Fiscal structure Year: 2011

Budget balance % of GDP: -3.4%

Primary balance % of GDP: -0.2%

Revenue potential: 25.23*

Size of shadow economy: 32.9% (2007)

——ECA average (unweight): 37.5% (2007)

——World average (unweight): 31.0% (2007)

Source: Policy research working paper 5356, the World Bank

2010

*Source: Munawer Sultan Khwaja & Indira Iyer, “Revenue

Potential, Tax Space and Tax Gap in ECA Countries: A

Comparative Analysis” (to be published)

Tax at a Glance

Source: World Bank - ECA Fiscal Database

After successfully avoiding a serious decline in growth and financial instability since 2009, the economy is weakening and macroeconomic imbalances are elevated. Albania has largely avoided a sharp fall in output since the crisis broke,

kept inflation low and stable, and maintained banking system stability, thanks to a fiscal stimulus and sound monetary

policy. But today, policy buffers are exhausted, macroeconomic imbalances persist, and with the ongoing Eurozone prob-lems, the economy has slowed. The financial sector is exposed to domestic and external risks, and incomplete investment

climate reforms constrain medium term growth. Its public finances are in need of adjustment. At nearly 60 percent of

GDP, the debt-GDP ratio today has reached the statutory ceiling and is among the highest in the region. As a result, new debt-financed fiscal stimulus would be counterproductive.

Looking toward the future, Albania is focused on supporting economic recovery and growth in a difficult external

environment, broadening and sustaining the country‘s social gains and reducing vulnerability to climate change – particu-larly through improved water resource management. Key challenges for Albania going forward include early resumption

of fiscal consolidation and strengthened public expenditure management, regulatory and institutional reform, reduction of

infrastructure deficits, and improvement in the effectiveness of social protection systems and key health services. The World Bank and International Finance Corporation (IFC) continue to help to reduce the infrastructure deficit in a

fiscally sustainable way, namely by increasing private investment and fostering public-private partnerships. Improving

the effectiveness of social protection systems and health services in order to make economic growth inclusive to every-one continues to be a priority during a time of weaker economic outlook.

Source: The World Bank

Albania and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013

Tax Administration Features Source: IOTA Database Trends and Revenues

Indicator 2012

Number of tax staff 1,596

Number of taxpayers 87,195

Number of taxpayers to tax staff 55

Number of field offices 13

Large Taxpayer Unit 1

Organization Albanian Taxation Office

Electronic filing Yes

Function The tax administration is organized along functional lines

Relationship with MOF The tax administration is not established as a (semi-) autonomous authority

19

http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/europe+middle+east+and+north+africa/ifc+in+europe+and+central+asia/countries/albania+country+landing+page

Tax reform efforts

Note: measured by the mean score. The most severe problem ranks number 1, and so on.

Key issues Source: The World Bank Regional Ranking of Problems Source: BEEPS

Note: Tax productivity is equal to the tax as a percent of the tax base (GDP or consumption) divided by the

standard tax rate. For VAT productivity the base is total consumption. For PIT and CIT, the base is GDP. In an

ideal world, productivity will be 100 if the entire base is taxed, there are no exemptions and there is no leakage.

Tax Administration Unofficial Payments: Taxes Tax Inspections Unofficial Payments: Customs

Tax revenues continue their downward trend. The economic slowdown

has affected tax revenues, but tax reform, motivated by the need to

enhance competitiveness—such as the introduction of a flat personal

income tax and a low corporate income tax in 2007–08—has also limited

the scope for additional revenues. Also, perceptions of corruption and

weak governance affect the view of Albania as an investment destination.

Arbitrariness of tax collection undermines the attractiveness of Albania‘s

low tax rates for businesses.

Moreover, Albania needs to increase tax rates and simplify the system.

Albania‘s tax revenue and primary spending to GDP ratios are low, yet

the country has significant medium-term development needs. Staff pro-

posed that the burden of future fiscal adjustment should fall largely on

revenues. With Albania‘s VAT rate already relatively high, increasing the

personal and corporate income tax rates will be necessary. The proposed

rate increase would likely not affect Albania‘s ability to attract invest-

ment, particularly if arbitrariness in collection is reduced, local

―nuisance‖ taxes—which are inefficient and effectively add to the tax

burden—are streamlined in a revenue neutral manner, and the priority

business climate issues are addressed.

In 2010, implementation of ASYCUDA World and the purchase of

scanners have reduced import customs clearance time.

Rank in 2005 Rank in 2008

Tax rates 1 3

Corruption 2 2

Tax administration 3 6

Customs and trade regulations 6 11

Productivity Indicators

The ease of paying taxes in Albania over time Source: Doing Business Database 2013

20

Year: 2011

VAT rate: 20%


CIT rate: 20%

PIT rate: 10% (up to 80,000 AMD)

20% (from 80,000 to 2,000,000 AMD)

25% (more than 2,000,000 AMD)


GDP Per Capita (Current US$): 3,305 (Year: 2011) Lower middle income

Country profile

Year: 2011



VAT % in GDP: 8.1%

CIT % in GDP: 2.6%

PIT % in GDP: 2.2%












2010




Tax at a Glance


In recent years (2003-2008), Armenia‘s development model was based on external financing (foreign

direct investment and private transfers), the volume of which kept increasing from year to year. This led to

an excessive growth of imports and non-tradable, reduced employment opportunities, and a relative and

absolute reduction of exports and industry, in the context of a constant appreciation of the national

currency.

In the post crisis period Armenia's fiscal policy prioritizes fiscal consolidation to restore macro-

economic stability and create conducive macro-environment for future growth. This policy was successful

in 2010-11 and helped to sharply reduce the fiscal deficit from 7.8 percent of GDP in 2009 to -2.8 percent

in 2011. Thus far this efforts have been supported mostly by public spending compression however moving

forward the focus should be shifted towards improving tax performance as there is no scope of squeezing

expenditures any further. The recent PER (2012) estimated Armenia's additional revenue potential in the

range of 4-6 percent of GDP which could be materialized on account of combined tax policy and tax ad-

ministration improvement.


Armenia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2010





Large Taxpayer Unit Yes

Organization State Revenue Committee of the Govern-

ment of the Republic of Armenia


Function The tax administration is organized along

functional lines

Relationship with MOF The tax administration is not established

as a (semi-) autonomous authority

21

Tax reform efforts


Key issues Source: The World Bank Regional Ranking of Problems Source: BEEPS





In the past, tax administration reform was slow compared to neighbor-

ing and middle-income countries. As a result, tax evasion is high and

voluntary compliance low because of the high compliance costs due to

weaknesses in audit, processing third party information, and detecting

tax fraud. Improvement in revenue performance needs to be accom-

plished by measures to encourage compliance and detect tax evasion.

Business process reengineering exercise at State Revenue Committee

had limited impact and will need further iterations. Large Taxpayer Unit

still has not been able to overcome the challenges of taxation of oligar-

chic structures and firms with strong political affiliations. Internal con-

trols need strengthening to effectively mitigate integrity risks.

On the positive note, tax administration reforms already resulted in

operational improvements, in particular, around 14% reduction of time

for compliance and reduced number of processes. The progress can be

attributed to roll-out of Taxpayer3 information system, with some mod-

ule development still in the pipeline. This enabled gradual movement to

e-filing with currently 7000 taxpayers filing electronically. Tax appeals

mechanism has been revised to equip with more checks and balances.

There is need to streamline the tax policy through elimination of

unnecessary tax expenditures.

In 2012, Armenia made tax compliance easier by reducing the number

of payments for social security contributions, CIT, property taxes and

by introducing mandatory e-filing and payment for major taxes. Risk-

based audit and unified taxpayer registration have been introduced.

Government continues to improve tax administration, which will in-

crease possibilities for identifying new taxpayers. It has also focused on

improving key tax policies, such as the taxation regime for the mining

sector and the elimination of exemptions in excise.

A Tax Administration Reform Project supported by the WB has

recently been launched in 2013.


Tax rates 2 1

Corruption 4 3




The ease of paying taxes in Armenia over time Source: Doing Business Database 2013

22

Year: 2012

VAT rate: 18%


CIT rate : 20%

PIT rate:

30% (for the monthly income above 2000 AZN)

14% (for the monthly income below 2000 AZN)



Country profile

Year: 2011



VAT % in GDP: 4.4%

CIT % in GDP: 4.3%

PIT % in GDP: 1.4%





Budget balance % of GDP: 0.6%

Non-oil fiscal deficit as % of non-oil GDP: -46.3%






2010


Potential, Tax Space and Tax Gap in ECA Countries: A Com-

parative Analysis” (to be published)

Tax at a Glance


Thanks to the use of oil wealth, Azerbaijan has become one of the world‘s fastest growing economies over the last 10 years. Azerbaijan managed the global financial crisis well, though the weak places in the economy have begun to show.

The experience during the global economic crisis has highlighted the importance of strengthening the non-oil economy,

particularly in light of the projected stabilization and subsequent decline in oil and gas revenues. Creating a competitive non-oil economy will require deeper economic changes in a wide range of areas – in regulations and governance,

infrastructure, skills, public institutions and in trade/FDI and macroeconomic policies.

The financial sector needs to be strengthened to support economic diversification. The ongoing capitalization should be used to create a more viable and competitive banking sector. Initiatives to strengthen this sector should be supple-

mented with supervisory safeguards to guide the capitalization process and contain risks in the system. The restructuring,

then downsizing and transparent privatization, of the largest bank IBA will be crucial to contain risks to the stability and efficiency of the banking system. This would also reduce the potentially high costs for the shareholders, including the

government.

The long-run sustainability of the economy requires development of non-oil exports. To supplement the promising ―easy service center‖ (ASAN) and e-government initiatives, the government needs to implement the e-signature, approve

a competition code endorsed by an independent international agency, implement the new customs code, and complete

WTO accession.

Source: The IMF Article IV

Azerbaijan and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012





Organization

Ministry of Taxes of the Republic of

Azerbaijan


Function

The tax administration is organized along

functional lines

Relationship with MOF

The tax administration not established as

a (semi-) autonomous authority

17.4

31.4

17.4

12.8

-0.20.6

-2

3

8

13

18

23

28

33

2004 2005 2006 2007 2008 2009 2010 2011

Trends and Revenues (as% of GDP)

Total Revenues Tax Revenues Budget deficit

23

Tax reform efforts

BEEPS


Key issues Source: IMF Article IV 2011





A review of the performance and structure of non-oil tax revenue in

Azerbaijan suggests there is room to advance a successful reform, while

bringing the tax system closer to standards in other emerging market

economies. Reforms should include broadening the tax base, reducing

compliance costs, and enhancing tax system transparency.

The stability of the nonoil tax base has been compromised by discre-

tionary actions. In contrast to good practices where exemptions are ap-

proved by parliament and included in the tax code, administrative discre-

tion of the cabinet of ministers is sometimes used in Azerbaijan. In addi-

tion to threatening the stability of the tax base, this weakens the transpar-

ency and accountability of tax policy decisions and undermines budget

revenues.

Weaknesses in tax and customs revenue collection processes are also a

concern. Further modernizing the tax administration and customs sys-

tems could enhance budget revenue, accelerate Azerbaijan's membership

in the WTO and help combat corruption. Ongoing efforts in this direction

focus on reinforcing the online IT systems for the registration and audit

of taxpayers and on adopting a new customs code compliant with EU

standards to strengthen customs offices, clarify methodologies for evalu-

ating goods, and put in place a "single electronic window" for custom

activities.

In 2009, the tax burden was reduced by introducing an online filing

and payment system with advanced accounting software for calculating

taxes due. This saves more than 500 hours a year on average in dealing

with paperwork.

In 2011, a revision of Azerbaijan‘s tax code lowered several tax rates,

including the profit tax rate, and simplified the process of paying corpo-

rate income tax and value added tax.


Tax rates 2 3

Corruption 3 1




The ease of paying taxes in Azerbaijan over time Source: Doing Business Database 2013

24

Year: 2012

VAT rate: 20% (Standard)

10% (Reduced)


CIT rate: 24%

PIT rate: 12% (Flat)

9% (Specific)

15% (Specific)



Country profile

Year: 2011



VAT % in GDP: 8.9%

CIT % in GDP: 3.1%

PIT % in GDP: 3.1%






Primary balance % of GDP: 1.7%






2010




Tax at a Glance

Source: World Bank—ECA Fiscal Database

A high rate of economic growth in Belarus – an average of about 8 percent annually from 2001 to 2011 have helped reduce poverty almost seven-fold. A favorable external environment, expressed in terms of trade gains, underpriced energy

from the Russian Federation, and strong economic growth among Belarus‘s main trading partners, supported economic

growth. 2011 was marked by a severe balance of payments and foreign exchange crisis, accelerated inflation and loss of the previous year‘s income gains. Overall, the Belarusian ruble lost close to 70 percent of its value vis-à-vis the USD.

Inflation soared to 109 percent (end-of-period). The poverty headcount ratio increased from 5.2 percent of population in

2010 to 7.3 percent in 2011. Some signs of stabilization started to emerge at the end of 2011, including decelerated inflation, foreign exchange mar-

ket stabilization and narrowing of external imbalances. Inflation declined to 39 percent year-on-year in September 2012 as

compared to almost 80 percent in September 2011. Preliminary data for the first six months of 2012 suggest a current account surplus of 1.7 percent of GDP, compared to a deficit of 7.3 percent of GDP in the first half of 2011. Official re-

serves rose to $7.9 billion (or equivalent of two months of exports of goods and services) by the end of 2011 due to slower

import growth, privatization proceeds and external financing. Macroeconomic stability continues to be fragile with significant risks, exacerbated by large external refinancing needs

and uncertainties in the Euro Zone and Russia. The two recent macroeconomic crises have exposed the limitations in the

country‘s development model and the need for comprehensive macroeconomic and structural reforms.


Belarus and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2010


Number of taxpayers 3,331,195




Organization Ministry of Taxes and Duties of the

Republic of Belarus



functional lines



25

Tax reform efforts


Key issues Regional Ranking of Problems Source: BEEPS


standard tax rate. For VAT productivity the base is total consumption. For PIT and CIT, the base is GDP. In

an ideal world, productivity will be 100 if the entire base is taxed, there are no exemptions and there is no

leakage.


In Belarus, there is still a relatively high tax burden on the business

sector. Tax reform to attract investment and foster economic growth should

be accompanied by reforms on the spending side in order not to widen the

budget deficit.

The government is encouraged to streamline the business income taxa-

tion, with a profit tax levied at an internationally competitive rate, com-

bined with a favorable treatment of investment, including more generous

depreciation provisions to bring depreciation rules in line with interna-

tional standards on economic life of assets. Also, the simplification of the

tax system should continue.

In 2010, Tax payments were made more convenient through increased

use of electronic systems—reducing tax compliance times—while lower

ecological and turnover tax rates and a reduction in the number of pay-

ments for property tax reduced the tax burden on businesses.

In 2011, Reductions in the turnover tax, social security contributions

and the base for property taxes along with continued efforts to encourage

electronic filing made it easier and less costly for companies in Belarus to

pay taxes.

In 2012, Belarus abolished several taxes, including turnover and sales

taxes, and simplified compliance with corporate income, value added and

other taxes by reducing the frequency of filings and payments and facili-

tating electronic filing and payment.


Tax rates 2 1

Corruption 8 10




The ease of paying taxes in Belarus over time Source: Doing Business Database 2013

26

Year: 2010

VAT rate: 17%

VAT threshold: (US$ equiv.)

CIT rate: 10%

PIT rate: 10%



Country profile

Year: 2010



VAT % in GDP: 12.0%

Direct taxes % in GDP: 3.1%












2010




Tax at a Glance

Source: IMF Article IV

Like elsewhere in the region, Bosnia and Herzegovina‘s pre-crisis growth model relied on booming

domestic demand financed from abroad. The BiH economy fell into recession in 2009. Following a

stagnation in 2010, growth is expected to rebound.

The post-crisis potential growth rate of the BiH economy is projected to be slightly below its pre-crisis

value, resulting in domestic output remaining permanently below the prevailing pre-crisis trend. The growth

of the BiH economy will likely become more dependent on gains in human capital and total factor pro-

ductivity. Also, enhancing BiH‘s human capital and speeding-up the pace of technological change would

require a renewed emphasis on structural reforms to unleash BiH‘s human capital and entrepreneurship

potential.

In sum, following a recession in 2009 and stagnation in 2010, the potential growth rate of the BiH econ-

omy would likely stay slightly below its pre-crisis value, resulting in domestic output remaining perma-

nently below the prevailing pre-crisis trend. Besides, enhancing BiH‘s human capital and speeding-up the

pace of technological change requires a renewed emphasis on structural reforms to unleash BiH‘s human

capital and entrepreneurship potential.

Source: IMF Country Report

Bosnia and Herzegovina and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012


Number of taxpayers 53,439 (VAT taxpayers)


Number of field offices N/A


Organization Indirect Taxation Authority of Bosnia

and Herzegovina



functional lines



27

Tax reform efforts






Tax administration. Improvements in tax administration should aim

at better control, improvements in cooperation as well as transparency

across agencies and Entities, and a broadening of the tax base. It is cru-

cial to maintain indirect tax collection at BiH level and maintain the

single account of the Indirect Tax Authority (ITA). Equally important is

the maintenance of a cooperative work environment enabling fast solu-

tions to contentious issues. Improvements are also needed in formalizing

the grey economy, which has been undermining tax revenue collection

while also placing an unequal burden on the formal sector.

The Fund has technical assistance in the area of tax administration,

including through a diagnostic mission in April 2011. This has been

followed by regular visits by a peripatetic advisor. A follow-up mission

to assess progress in various areas is scheduled for the Fall of 2012.

.

In 2009, The corporate income tax rate was reduced from 30 percent

to 10 percent effective January 1, 2008. Profit distribution (including

dividends) is now tax exempt, and tax losses can be carried forward for

five years.

In 2011, Bosnia and Herzegovina simplified its labor tax processes,

reduced employer contribution rates for social security and abolished its

payroll tax.


Tax rates 1 1

Corruption 7 5




The ease of paying taxes in Bosnia and Herzegovina over time Source: Doing Business Database 2013

Key issues Source: IMF Article IV 2012 Regional Ranking of Problems Source: BEEPS

28

Year: 2012


9% (Reduced)


CIT rate : 10%

PIT rate: 10% (Flat)

5% (Dividend income)

15% (Sole entrepreneurs)



Country profile

Year: 2011



VAT % in GDP: 8.7%

CIT % in GDP: 1.9%

PIT % in GDP: 2.9%












2010




Tax at a Glance


Bulgaria has come a long way from its turbulent political and economic transition in the 1990s to

becoming a member of the European Union in January 2007. Today, Bulgaria remains among the most

fiscally disciplined EU member states ─ an important feat in the context of global and European economic

uncertainties. EU Structural and Cohesion Funds can play a critical role in Bulgaria‘s quest for growth. With the ob-

jective of boosting EU funds absorption and supporting the National Reform Program, the Government of

Bulgaria and the World Bank signed a Memorandum of Understanding (MoU) in January 2012, marking an

important shift in the 20-year partnership from traditional lending operations to a greater focus on knowl-

edge and advisory services. The evolving partnership represents an important step taken by the Govern-

ment of Bulgaria to draw on World Bank‘s expertise to develop and implement strategies and programs in a

range of sectors under Operational Programs financed by EU Structural Funds.

The MoU is consistent with the World Bank Group‘s Country Partnership Strategy for Bulgaria for

2011-2013, aimed at supporting the Government in achieving smart, sustainable and inclusive growth – in

line with the European Commission‘s Europe 2020 Strategy.


Bulgaria and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization National Revenue Agency



functional lines

Relationship with MOF The tax administration is established as a

(semi-) autonomous authority

29

http://www.worldbank.bg/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/BULGARIAEXTN/0,,contentMDK:23093608~menuPK:50003484~pagePK:2865066~piPK:2865079~theSitePK:305439,00.html



Tax reform efforts







The rates of direct taxes, which are among the lowest in the EU

Member States, remain unchanged. The consistent shifting of the burden

to indirect taxes continues through an increase of certain rates of excise

duty as from the beginning of 2011 in accordance with the arrangements

for reaching the Community minimum rates.

Tax policy faces a challenge to improve the effectiveness of tax com-

pliance through a number of measures taken on the part of the revenue

administrations. They include increasing the number of on-site

inspections, improving the performance of mobile units, conducting

more frequent and more thoroughgoing audits, as well as introducing

more rigorous accounting rules and judicial prosecution of unlawful

practices inflicting losses on the Exchequer.

Corruption and tax compliance are becoming significant challenges to

Bulgaria‘s tax policy and administration, and corruption ranks the No.1

problem in 2008 according to BEEPS.

In 2009, amendments to the civil procedural code have helped speed

contract enforcement. They reformed rules for evidence and default

judgments, raised the minimum threshold for cases in the lower courts,

and empowered the civil court of last instance to decide which cases to

hear, limiting abuse of the appeals process.


The ease of paying taxes in Bulgaria over time Source: Doing Business Database 2013


Tax rates 1 2

Corruption 3 1



30

Year: 2012


5% (Reduced rate)


CIT rate: 20%

PIT rate: 12% (Not exceeding HRK 26,400)

25% (Not exceeding HRK 105,600)

40% (Exceeding HRK 105,600)


GDP Per Capita (Current US$): 14,180 (Year: 2011) High income: non-OECD

Country profile

Year: 2012

Tax as % of GDP excluding social: 28.19%


VAT % in GDP: 12.30%

CIT % in GDP: 2.41%

PIT % in GDP: 3.47%







Revenue potential: 34.8% of GDP*





2010




Tax at a Glance

Source: IMF Database 2011

Like many other countries in the region, the global financial crisis impacted Croatia. In 2009-2010, the

economy contracted by 9.2 percent. The fiscal deficit is widening and public debt is growing. The current

account deficit declined to 1.0 percent of GDP in 2011, having reached nearly 9 percent three years earlier.

Prospects for economic recovery remain fragile and the new administration faces the challenge of

embracing deep reforms.

Beyond ensuring macro stability and achieving smart, sustainable and inclusive growth to boost economic

competitiveness, the Government faces the strategic challenge of maximizing the use of EU Structural

Funds. To support recovery and mitigate social impacts, the former Croatian Government adopted the

Economic Recovery Program (ERP) in April 2010. In May 2011, the World Bank supported the implemen-

tation of the ERP through a EUR 150 million budget support loan (ERDPL).

On July 1, 2013, Croatia is set to crown almost twenty years of economic and social progress, since

declaring independence by becoming the 28th member state of the European Union.

Throughout its engagement in Croatia, the World Bank has developed and maintains partnerships with key

international institutions active in the country.


Croatia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2011



Number of taxpayers to tax staff 1,098

Number of regional offices 20 + special office in Zagreb

Number of local offices 122


Organization Ministry of Finance-Tax Administration



functional lines


department of the MOF

31

Tax reform efforts






Tax Administration Unofficial Payments: Taxes Tax Inspections Unofficial Payments:

IMF country report in 2012 mentioned that efforts were needed to

rebalance the tax structure away from labor in a revenue-neutral way

and encouraged the authorities to pursue them further. The 2012 health

contributions-VAT rebalancing, a.k.a. fiscal devaluation, should

improve competitiveness and underpin demand for labor. To reduce the

revenue loss from the intended further 1 percentage point cut in health

contributions in 2013, staff recommended increasing the zero VAT rate

on certain domestic sales to 10 percent rather than the minimum

admissible 5 percent under EU requirements, with part of the additional

revenue used to augment targeted social assistance. Furthermore,

introducing a modern value-based property tax, accompanied by

transferring additional spending responsibilities to local governments,

would also help. However, the proceeds of such tax are likely to be low

in the short term given the need to improve the land and property

registers.

There were several reforms undertaken in 2009 to 2012 period. They

include: (i) PIT, CIT and VAT tax rate/rules changes; (ii) a withhold-

ing tax on dividends (12%) has been introduced; (iii) establishment of

the LTO; (iv) tax audit procedures to supervise cash transactions were

introduced; (v) the Tax Identification Number has been rolled out to

other public sector institutions for tax and other purposes.

The country raised the VAT rate to 25% last year, abolished zero rate

this year and introduced 5% rate for basic foodstuff, books, pharma-

ceuticals.


Tax rates 2 1

Corruption 3 5




The ease of paying taxes in Croatia over time Source: Doing Business Database 2013

32

Year: 2012


14% (Reduced)


CIT rate : 19%

PIT rate: 15%


GDP Per Capita (Current US$): 20,579 ( Year: 2011) High income: OECD

Country profile

Year: 2011



VAT % in GDP: 7.0%

CIT % in GDP: 3.4%

PIT % in GDP: 3.7%












2010

*Source: Munawer Sultan Khwaja & Indira Iyer, ―Revenue


Comparative Analysis‖ (to be published)

Tax at a Glance


The Czech Republic is one of the most stable and prosperous nations among the post-Communist states

of Eastern and Central Europe. After its transition from Communism it emerged as a functioning market

economy, maintaining an open investment climate that was a key component for success. Its economy grew

by more than six percent from 2005 to 2007, and even remained robust through the global economic crisis

in 2009.

The Czech Republic joined the World Bank in 1993 by joint succession with the Slovak Republic from

the former Czechoslovakia and graduated from the Bank's financial assistance in Spring 2006. However, it

still maintains an active partnership with the Bank on technical assistance and analytical work.

The collaborative relationship between the Czech Republic and the World Bank has provided opportuni-

ties to learn lessons and develop analytical instruments which also benefit other countries in the Region

which started their transitions later.

As a development partner, the Czech Republic contributes to the International Development Association

(IDA), the Bank's concessional window, and plays an active role in regional and multilateral institutions.


Czech Republic and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012




Number of regional offices 220

Large Taxpayer Unit No

Organization Financial Administration of the Czech

Republic



functional lines



33

Tax reform efforts


Key issues




leakage.


The Czech Republic‘s average effective tax rates are lower than in most

other EU countries and its reform exacerbates this feature. The key

distributional feature of its 2008 reform package is a substantial tax cut for

low income working individuals and an even larger cut for high income

earners.

The reform package includes welcome steps to move the tax burden to

indirect taxation, including environmental taxes, and lowering taxation on

capital income, while also reducing health spending and the generosity of

some social benefit schemes. However, it does not seem to fully deliver on

its objectives, and certainly not in a cost efficient way.

The Czech Republic maintains government spending levels that are closer

to the EU-15 average than to its regional peers. This leaves little or no room

for tax cuts, since the burden of reducing spending would be further

aggravated if taxes were reduced. For the Czech Republic going forward, the

difficult—and delicate—policy task is to find an appropriate balance

between tax increases and spending cuts that result in the required long-term

improvement of the government balance.

The 2008 reduction in the personal income tax, aimed at stimulating labor

demand and supply, comes at the costs of untenable losses in government

revenues.

In 2012, the Czech Republic revised its tax legislation to simplify

provisions relating to administrative procedures and relationships between

tax authorities and taxpayers.

In 2011, the Czech Republic simplified its labor tax processes and

reduced employer contribution rates for social security.

In 2010, paying taxes was made easier with mandatory electronic filing

for all taxes, a single tax institution, and unified filing.

Regional Ranking of Problems Source: BEEPS


Tax rates 1 3

Corruption 3 9




The ease of paying taxes in Czech Republic over time Source: Doing Business Database 2013

34

Year: 2012


9% (Reduced)

VAT threshold: 20,440(US$ equiv.)

CIT rate : 21%

PIT rate: 21%


GDP Per Capita (Current US$): 16,533 (Year: 2011) High income: low income

Country profile

Year: 2011



VAT % in GDP: 8.5%

CIT % in GDP: 1.3%

PIT % in GDP: 5.3%












2010.



Comparative Analysis‖ (to be published).

Tax at a Glance


In 2012, Estonia‘s economy is set to slowdown in line with weakening export markets but the output gap will continue to close. With increased downside risks, Estonia faces the continuing challenge to implement policies preserving

macroeconomic policy credibility, while enhancing sustainable growth.

Estonia‘s enviable fiscal position will remain strong even though a deficit of about 2¼ percent of GDP will emerge in 2012. This will imply a fiscal stimulus at a time when a neutral stance would be appropriate. Adhering to the budgetary

allocations would be appropriate. Should downside risks materialize, automatic stabilizers should be allowed to operate

while preserving credibility. Looking forward, the authorities‘ medium-term target of a small surplus can be supported by a fully-fledged multi-year fiscal framework, which would allow fiscal buffers to be rebuilt.

Estonia must stand ready to address short-term risks, while medium-term polices should focus on sustainable growth

and increased employment. Besides safeguarding Estonia‘s competitiveness, increasing sustainable long-run growth will require moving up the value chain, addressing long-term unemployment, and enhancing human capital. Fostering a

business-friendly environment by building R&D capability and enhancing cross-border infrastructure can attract tradable

sector FDI. Further improvements in vocational training and higher education can alleviate long-run unemployment and boost human resources.


Estonia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012




Number of field offices 16 Services Bureaus


Organization Estonian Tax and Customs Board



functional lines



35

Tax reform efforts





ideal world, productivity will be 100 if the entire base is taxed, there are no exemptions and there is no leakage


To stabilize budget revenues in Estonian, government must increase

the share of income taxation and reduce taxing consumption. As for social

taxation, its share is more or less optimum and could be left unchanged.

The key problems with the current proportional income tax system of

private persons is that it is inefficient in collecting tax, it increases the gap

in income levels and, what's most important, it has low automatic

stabilization effect on the economic cycle.

An even bigger problem is related to the taxation of corporate profits.

In no other EU state plays income tax such a small part in the government

sector budget revenues as in Estonia. Also IMF recommended changing

the current situation and restoring classic profit taxation principles.

In order to bring more tax revenues to the local governments it is nec-

essary to replace the land tax with real estate tax. IMF has a clear view

with this regard – the current Estonian land tax is not a sufficient

instrument for accumulating taxes and should be replaced with taxation of

real estate. The tax system in Estonian must efficiently fulfill its

functions, instead of being an object of national self-admiration.

In 2011, Estonia increased the unemployment insurance contribution

rate.

In 2012, In Estonia a municipal sales tax introduced in Tallinn made

paying taxes costlier for firms, though a later parliamentary measure

abolished local sales taxes effective January 1, 2012.


Tax rates 6 2

Corruption 3 10




The ease of paying taxes in Estonia over time Source: Doing Business Database 2013

36

Year: 2012

VAT rate: 18%


CIT rate: 15%

PIT rate: 20%



Country profile

Year: 2010



VAT % in GDP: 10.7%

CIT % in GDP: 2.8%

PIT % in GDP: 5.9%










2010. *Source: Munawer Sultan Khwaja & Indira Iyer, ―Revenue



Tax at a Glance

Source: IMF and ECSPE Fiscal Database

The ―twin‖ crisis of 2008–09 brought about a marked shift in Georgia‘s external position. The period

immediately preceding the crisis was characterized by a surge in private capital inflows—both in the form

of FDI and of bank and corporate borrowing. The counterpart of these developments was a sharp widening

of Georgia‘s current account deficit, bringing it at the very high end among comparator countries. Georgia‘s

current account position on the eve of the crisis was widely viewed as unsustainable, and the lari exchange

rate as substantially misaligned.

Through a combination of current account adjustment and official financing mobilization, Georgia was

able to limit the impact of these drains on its international reserves.

In summary, Georgia‘s current level of reserves appears adequate. In the medium term, the challenge for

the authorities will be to preserve reserve adequacy as the central bank meets its repayment obligations to

the Fund. The medium-term framework presented in the staff report, which notably envisages a significant

reduction of the current account and the external refinancing of the government‘s external debt obligations,

is consistent with this objective.

Source: IMF Country Report 2011

Georgia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization Revenue Service of Georgia



functional lines



37

Tax reform efforts







Staff rightly identified ―the challenge of enhancing tax pro-

ductivity in Georgia‖ as an important issue. Supplemental analy-

sis of tax productivity is an important tool that should be used

more frequently by the staff in country reports. Indeed, tax col-

lection in Georgia has improved significantly in recent years.

Strong political will and a stream of measures aimed at improv-

ing tax compliance have contributed to the enhancement of the

tax base and minimize tax fraud. Driven by the desire to imple-

ment a simple and business-friendly tax framework, the govern-

ment seeks an appropriate balance between reasonable and con-

text-specific containment measures on the expenditure side and

thoughtful revenue-enhancing measures.

In 2010, the documentation requirements for import and ex-

port were simplified, and there was a significant decrease in the

cost of trade.


Tax rates 1 3

Corruption 3 9




The ease of paying taxes in Georgia over time Source: Doing Business Database 2013

38

Year: 2012


5% (Reduced)

18% (Reduced)


CIT rate : 19% (Standard) 10%(First US$2,500,000 of taxable

income)

PIT rate: 16%


GDP Per Capita (Current US$): 14,044 (Year: 2011) High income: OECD

Country profile

Year: 2011



VAT % in GDP: 8.5%

CIT % in GDP: 1.2%

PIT % in GDP: 4.9%












2010 .




Tax at a Glance


Hungary‘s rebound from the 2008–09 crisis has been modest. After contracting nearly 7 percent, real out-

put rose only 1.3 percent in 2010. This already weak recovery is now faltering largely due to spillovers

from the Eurozone crisis. The slower growth and recent government actions are weighing on the financial

sector. Despite the slowing growth, the authorities have started to tighten fiscal and monetary policy.

At the same time, the authorities have tried to support growth through a mix of well-received reforms and

some more controversial policy steps. In this difficult environment, Hungary‘s financial market indicators

are deteriorating.

In the baseline scenario, staff expects a further slowdown in Europe, which causes the Hungarian econ-

omy to stagnate in 2012 and recover only gradually thereafter. By contrast, in the adverse scenario, a wors-

ening of the Eurozone crisis triggers a recession and the emergence of an external financing gap.

The core policy challenge for Hungary going forward is addressing large debt burdens without choking

already weak growth.

Source: The 2011 Article IV consultation

Hungary and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012





Number of local offices Not available


Organization The National Tax and Customs Admini-

stration (NAV)



functional lines Relationship with MOF An independent government organ since

2011

39

Tax reform efforts







Tax policy aims at creating incentives for labor participation and SME

development, at the same time securing the revenues needed to pursue

the structural transformations while containing the fiscal deficit. The tax

burden was gradually shifted away from labor income, leaving the over-

all burden on capital income unchanged at an already low level. Reve-

nues were replaced by VAT hikes, excise duties, new consumption and

turnover taxes based on a ―broad base–low rate‖ approach (financial

transaction levy, telecommunication tax), taxes on negative externalities

(tax on unhealthy food products, product fees, car accident tax), several

tax base broadening measures (improving tax compliance, deleting tax

reliefs, tax hikes on fringe benefits, stricter loss carry-forward rules) and

the introduction/increase of taxes on businesses with excess market

power (bank levy, tax on energy companies).

Transient sectorial surcharges have now become a permanent feature

of the tax system and new taxes, like the bank transaction tax, have been

introduced to support an unsustainably high level of public spending.

The authorities are encouraged to focus their efforts on achieving a dura-

ble spending reduction that will pave the way to reduce the tax burden

and improve the efficiency of the tax system over time. In addition, deci-

sive steps should be taken to strengthen revenue administration, in par-

ticular to combat VAT fraud.

In 2012, Hungary made paying taxes costlier for firms by introducing

a sector-specific surtax.

In 2011, Hungary simplified taxes and tax bases.


Tax rates 1 1

Corruption 8 3




The ease of paying taxes in Hungary over time Source: Doing Business Database 2013

40

Year: 2012

VAT rate: 12%


CIT rate: 20%

PIT rate: 10%



Country profile

Year: 2011



VAT % in GDP: 3.2%

CIT % in GDP: 8.2%

PIT % in GDP: 1.4%






Non-oil deficit % of GDP: -7.9%






2010 .




Tax at a Glance


Kazakhstan has rebounded well from the economic recession that affected the country in the first half of 2009. During the crisis, GDP growth rate registered at just 1.2% and the country plunged into recession from the sharp fall of oil and commodity prices. With a growth rate of 7.5% in 2011, this oil-producing country ranks in the top 10 fastest growing countries. Rising commodity prices and the expansion of the oil industry have helped to revive the economy with continued growth predicted, barring a dramatic decline in oil prices. However, most non-resource sectors of the economy continue to suffer from low productivity and competitiveness, and the country remains vul-nerable to commodity price fluctuations. A customs union (CU) between Kazakhstan, Russia and Belarus was established in January 1, 2010 and marked a major change in the path of regional integration with important implications for Kazakhstan. In the past decade there has been a significant decrease in poverty rates, from 46.7% in 2001 to 6.5% in 2010. The gap between urban and rural living standards still remains - the poverty rate is under 5% in urban areas, while it is about 10% in rural locations. Overall, about 30% of the population receives some sort of social assistance.


Kazakhstan and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization Tax Committee of the Ministry of Fi-

nance of the Republic of Kazakhstan



functional lines



41

Tax reform efforts





ideal world, productivity will be 100 if the entire base is taxed, there are no exemptions and there is no leak-

age.


The size of the tax bureaucracy (9,000) is large relative to the amount of

tax collected and the number of taxpayers, compared to many modern tax

administrations. Instead of a modern, functional focus, tax administration

has the old geographical focus with more than 200 tax offices located in all

rayons maintaining close contact with taxpayers. Consolidation of tax of-

fices with the use of modern technology is an important reform goal that

the Government plans to do as part of tax administration reform.

The taxpayer services are underutilized, the audit system is weak, and the

appeal mechanism lacks taxpayer confidence. To improve the confidence

in the appellate system, there are plans to sent up independent tax courts

directly under the jurisdiction of the Supreme Court.

In terms of the effectiveness of the tax administration, the VAT productiv-

ity of Kazakhstan at about 0.53 is much lower than the ECA average of

0.66. PIT productivity at 0.04 is particularly low. On the other hand, the

corporate income tax (CIT) productivity is impressive, being the second

highest in the region (at about 0.35). This shows that while CIT is per-

forming well, there are serious problems with VAT administration. The introduction of universal filing, planned for 2015 is expected to raise

the effectiveness of PIT. Reforms are also planned for excise taxation,

field and desk audits. Business process reengineering (BPR), risk manage-

ment, and institutional reforms are being undertaken.

In 2008, Kazakhstan made paying taxes easier by lowering sanctions for

late payments of taxes.

In 2010, Kazakhstan reduced the tax burden on companies by reducing

the social tax for 2008 and by reducing the corporate income tax rate from

30% to 10% for 2009.

Kazakhstan and the World Bank embarked on a 5-year Tax Administra-

tion Reform Project that aims at comprehensive reforms to improve the

efficiency and effectiveness of tax administration. The project includes

organizational restructuring, business process reengineering and ICT mod-

ernization.


Tax rates 1 2

Corruption 5 3




The ease of paying taxes in Kazakhstan over time Source: Doing Business Database 2013

42

Year: 2011

VAT rate: 16%


CIT rate: 10%

PIT rate: Progressive rates of 4%, 8% and 10%



Country profile

Year: 2011



VAT % in GDP: 11.1%

CIT % in GDP: 1.2%

PIT % in GDP: 1.2%






Size of shadow economy: 30%-40%

Tax at a Glance


With a GDP per capita of €2,590, Kosovo is one of the poorest countries in Europe. Poverty remains persistent and widespread: accord-

ing to the latest available data (from 2009) 37 percent of the population is living below the national poverty line, and an estimated 12

percent are extremely poor – i.e., unable to meet basic nutritional needs. Extreme poverty is disproportionately high among children, the

elderly, households with disabled members and female-headed households. However, the narrowness of the poverty gap suggests that

poverty is not deep.

With a 45 percent unemployment rate and a very low employment rate (29 percent), Kosovo has the weakest employment track record

in Europe, and Kosovo‘s 48 percent labor participation rate among the working age population is substantially below the average among

all transition economies (65 percent).

In 2011, the economy grew at 5% rate according to the IMF. Kosovo has established the euro as the local currency, which has led to

relatively low inflation. Inflation picked up in 2008, but prices began to fall again in 2009 (annual average inflation was -2.4 percent in

2009). Inflation was relatively high at 7.3% in 2011 but is expected to remain positive and low throughout 2012.

The relatively small impact of the global financial and economic crisis on real growth up to this point reflects Kosovo‘s limited interna-

tional integration with the world economy. Given the lack of monetary policy instruments, fiscal policy is the main anchor for macroeco-

nomic stability. Kosovo achieved early successes in fiscal policy, including reforms in tax policy and administration and the introduction

of new taxes and collection methods that contributed to a five-fold increase in domestic revenues between 2000 and 2004. It managed to

maintain a positive growth rate (both of the economy and the revenues) and a fiscal deficit below 3% in the last 7 years. Revenues grew by

18% in 2011 and are expected to grow by about 5% in 2012.

Source: Country Economist

Kosovo and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013

Tax Administration Features Source: World Bank Database Trends and Revenues

Indicator 2010

Number of tax staff 243





Organization Ministry of Finance



functional lines



43

Tax reform efforts






Tax Administration Unofficial Payments: Taxes Tax Inspections

The potential for fiscal expansion in Kosovo was constrained by limited

administrative capacity, the narrow coverage of domestic tax instru-

ments—especially direct taxes—and the government‘s inability to issue

debt.

The authorities and staff agreed that Kosovo‘s system of fiscal decen-

tralization needs amendments. A well-designed system of budgetary

grants leaves adequate funds for municipalities, but there are little incen-

tives for municipalities to raise own-source revenue, which results in ex-

ceptionally low municipal tax rates. IMF Staff recommended raising the

minimum rate on the property tax that is collected by municipalities, and

reducing central government grants accordingly. The authorities agreed in

principle, but noted that such a reform required careful preparation—

notably a revision of the grants system.

Also, there is a need to strengthen tax administration improvements in

tax collection by broadening the tax base and enhancing collection efforts.

In 2010, the corporate income tax rate was cut from 20 percent to 10

percent in 2009.


The ease of paying taxes in Kosovo over time Source: Doing Business Database 2013

Rank in 2008

Tax rates 11

Corruption 2

Tax administration 12

Customs and trade regulations 9

44

Year: 2011

VAT rate: 12%


CIT rate: 10%

PIT rate: 10%


GDP Per Capita (Current US$): 1,070 (Year: 2011) Low income

Country profile

Year: 2011



VAT % in GDP: 7.5%

CIT % in GDP: 4.2%

PIT % in GDP: 2.0%











2010 . *Source: Munawer Sultan Khwaja & Indira Iyer, ―Revenue



Tax at a Glance


With improvements in the political and security situation, the Kyrgyz economy recovered from recession,

experiencing broad-based growth of 5.7 percent in 2011. Strong revenue performance and lower than pro-

jected expenditures resulted in a fiscal deficit of 4.6 percent in 2011 compared to an earlier projection of 8.3

percent. The current account deficit (CAD) narrowed from 6.8 to 4.4 percent of GDP on account of strong

growth in exports and remittances.

The Government‘s macro-fiscal framework is supported by an IMF 3-year Extended Credit Facility

(ECF) approved in June 2011. The World Bank supports the Kyrgyz Republic in the area of macroeco-

nomic and fiscal policy through several operations: the Emergency Recovery Project of 2010, the Economic

Recovery Support Operation of 2011, the Additional Financing provided through the Health SWAP. The

new Programmatic Development Policy Operations are currently under preparation and expected to provide

support to the budget over the period 2012-14.

Weak economic governance and a high level of perceived corruption have been seen as key hurdles to

development in the Kyrgyz Republic. The new government has adopted improved governance and fight

against corruption as a priority in its overall reform program.


Kyrgyz Republic and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization The State Tax Services (STS)



functional lines



45

Tax reform efforts






In 2012, The Kyrgyz Republic made paying taxes costlier for firms by

introducing a real estate tax, though it also reduced the sales tax rate.

Also, it has a significant reduction in VAT.

In 2010, The tax burden on businesses was eased by reducing the

rates for several taxes as well as the reduction of the number of pay-

ments for several taxes.


Tax rates 2 3

Corruption 3 2




The ease of paying taxes in Kyrgyz Republic over time Source: Doing Business Database 2013


Reforming tax administration could yield significant additional reve-

nue and help improve the business environment. In this context, the

authorities believe that focusing on large taxpayers by expanding cov-

erage by the Large Taxpayers‘ Office would be particularly effective in

achieving revenue gains. The government‘s efforts to improve the

quality and reduce the frequency of tax audits will ease the administra-

tive burden on businesses and limit opportunities for rent seeking.

Regular communication with taxpayers and enhancing access to infor-

mation will raise confidence in the tax authorities and encourage tax-

payer self-compliance.

Given that a large part of the domestic economy remains outside the

tax system, the Kyrgyz government efforts will focus specifically on

broadening the tax base, which should help improve the efficiency of

the Kyrgyz tax system. The main elements of the reform will be to

improve the customs valuation system, removing tax exemptions and

reforming excise taxation on tobacco and alcohol. Such measures will

encourage the formalization of the economy, limit tax evasion, spread

the tax burden more evenly and simplify the tax system.

46

Year: 2012


12% (Reduced)

VAT threshold (Business established): 63,752

(US$ equiv.)

CIT rate : 15%

PIT rate: 25%



Country profile

Year: 2011



VAT % in GDP: 6.8%

CIT % in GDP: 1.4%

PIT % in GDP: 5.6%












2010.




Tax at a Glance


Latvia‘s severe downturn from the global financial crisis may now be bottoming out. Strong policy actions

have supported stabilization and the authorities‘ competitiveness strategy. Adjustment of 13 percent of GDP

has counteracted massive fiscal deterioration due to the crisis and greatly enhanced the credibility of the

authorities‘ strategy, although some measures were low-quality and not sustainable.

Immediate risks are now much lower, but key challenges remain to strengthen the economy and enable

euro adoption: boosting growth to reduce unemployment; accelerating the shift toward the tradable sector;

undertaking substantial and durable further fiscal adjustment; ensuring that competitiveness is restored and

maintained; and resolving the substantial private sector debt overhang that inhibits recovery.

Despite substantial progress, risks remain. Sustained high unemployment would add to spending pressures,

while not resolving bad loans and restoring financial sector health would also drag down growth. Failure to

undertake structural reforms could undermine competitiveness under a fixed exchange rate. Additional risks

include possible delays in euro adoption and spillovers from adverse developments in Western Europe.

Source: the 2011 Article IV consultation

Latvia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization State Revenue Service



functional lines



47

Tax reform efforts






leakage.


Latvia has a tradition of very low taxation, which worked well when

growth was high. But lower growth will require a tax system that brings

revenues more in line with expenditures. As a first step in this direction,

measures proposed for this year and next include improvements in tax ad-

ministration and a broadening of the real estate and personal income tax.

Taking steps to raise revenues now will help avoid further cuts in spend-

ing down the line. But we should make sure that tax reform—such as

changes to the personal income tax—does not disproportionably fall on the

poor. Latvia has had a flat tax in place since 1997. Making it more progres-

sive would bring the country in line with most other countries in the EU and

would reduce the tax burden on low-income groups.

Tax laws need to be drafted more clearly and their application made

more transparent. The mission recommended that the State Revenue Ser-

vice publish tax rulings promptly to reduce taxpayers‘ uncertainties, publish

answers to tax questions, and establish a provision for advance decisions on

tax queries.

There are no tax reforms in the recent four years, from year 2009 to

year 2012.


Tax rates 2 1

Corruption 4 3




The ease of paying taxes in Latvia over time Source: Doing Business Database 2013

48

Year: 2012


5% (Reduced)

9% (Reduced)

VAT threshold (Businesses established):

57,346 (US$ equiv.)

CIT rate : 15%

PIT rate: 5%/15%/20%



Country profile

Year: 2011



VAT % in GDP: 7.9%

CIT % in GDP: 0.8%

PIT % in GDP: 3.5%












2010.




Tax at a Glance


Following a sharp output decline in 2008 and 2009, Lithuania has staged one of the strongest recoveries in

Europe. Export growth has been the main driver of the recovery. Booming exports raised corporate profit-

ability and improved the labor market. As a result, the recovery has broadened to domestic demand. Re-

bounding domestic demand, import-intensive exports, and higher energy prices have boosted imports. The

surge in food and energy prices raised headline inflation, but pressures are now abating.

Growth is expected to slow sharply. Annual growth in 2012 is projected to be 3½ percent. As a result, the

estimated negative output gap should narrow from 2.7 percent in 2011 to 1.4 percent in 2012 (compared to

6.1 percent in 2010). The external current account deficit should remain manageable, and the labor market

should continue to improve. Besides, headline inflation is expected to moderate going forward.

Its fiscal deficit has narrowed substantially since 2009, reflecting mainly expenditure restraint. Looking

ahead, the government‘s 2012 deficit target of 2.8 percent of GDP and medium-term objective of a small

surplus are appropriate.


Lithuania and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization State Tax Inspectorate under the Ministry

of Finance of the Republic of Lithuania



functional lines Relationship with MOF The tax administration is not established


49

Tax reform efforts


Key issues




leakage.


Lithuania‘s tax system relies heavily on labor and consumption taxes,

with low wealth taxes. Compared to the EU average, the share of taxes

from consumption in total tax revenue is very high (42 percent in Lithua-

nia, vs. 29 percent in the EU), and that of capital and wealth low (9 percent

in Lithuania, vs. 20 percent in the EU). The total share of taxes on labor

income is close to the EU average (49 percent in Lithuania vs. 51 percent

in the EU), but labor is also relatively more mobile in Lithuania and the

grey economy is large. Besides, taxes in Lithuania appear to play a limited

role in income redistribution. Recent Fund research suggests that societies

with lower income inequality tend to experience more inclusive and sus-

tainable growth.

Hence, tax policy changes should usefully focus on wealth and capital

taxation. These taxes raise revenue, are less distortionary than other taxes,

provide a stable source of revenue that is less subject to cyclical changes,

and are more progressive than some other taxes. That said, tax administra-

tion improvements are important to ensure that tax changes yield their full

potential.

In 2011, Lithuania reduced corporate tax rates.

In 2010, the corporate income tax was raised from 15 percent to 20

percent.


Tax rates 1 1

Corruption 7 5




The ease of paying taxes in Lithuania over time Source: Doing Business Database 2013

50

Year: 2012


5% (Reduced)


CIT rate: 10%

PIT rate: 10%



Country profile

Year: 2011



VAT % in GDP: 9.1%

CIT % in GDP: 0.8%

PIT % in GDP: 2.1%












2010.




Tax at a Glance


Economic activity has slowed down over the last few quarters amid increased uncertainty in the external

environment. Still, growth is expected to be positive in 2012 at around 1.5% – 2.5%; the growth prospects

over the medium-term are more favorable. The external current account remains moderate. Also, the finan-

cial account performed well. Fiscal policy continues to be prudent. The fiscal deficit was maintained at 2.5 % of GDP in 2011, an

appropriate stance reflecting the position of the economy in the business cycle. However, fiscal policy will

need to remain cautious. Over the medium-term, the fiscal accounts would need to be gradually adjusted as

the economy approaches the potential growth rates.

The tax burden will remain modest, with relatively few taxes, moderate tax rates and improving admini-

stration. Control of expenditures, but more importantly, a shift in their structure, will support economic

growth. The objective of the World Bank‗s Country Partnership Strategy with FYR Macedonia for fiscal years

2011-2014 is to provide selective and targeted financial support and knowledge and advisory services in

support of faster, more inclusive and greener economic growth.


Macedonia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization Public Revenue Office





51

Tax reform efforts







Tax administration. Continued reforms in this area will help to im-

prove compliance and reduce informality, contributing to a broader and

more stable tax base that allows lower tax rates and adequate fiscal fi-

nancing. Macedonia has already achieved major gains by unifying the

collection of social contributions (pension, health and unemployment)

and integrating them with personal income tax collection, resulting in

significant improvement in compliance.

The Fund will retain the lead in tax administration reform and the

Bank will continue the dialogue with the Government in order to reas-

sure the sustainability of the pension system and prevent a drain on gen-

eral tax revenues.


Tax rates 3 3

Corruption 1 4




The ease of paying taxes in Macedonia over time Source: Doing Business Database 2013

In 2009, the corporate income tax was reduced to 10 percent effective

January 1, 2008.

In 2010, Social security payments were classified in five groups, and

social security contribution rates reduced.

In 2011, FYR Macedonia lowered tax costs for businesses by requiring

that corporate income tax be paid only on distributed profits.

52

Year: 2012


6% (Reduced)

8% (Reduced)


CIT rate: 12%

PIT rate: 7% (Not exceeding 25,200 MDL)

18% (Exceeding 25,200 MDL)



Country profile

Year: 2011



VAT % in GDP: 12.7%

CIT % in GDP: 0.7%

PIT % in GDP: 2.2%








Size of shadow economy: 25.50%




Tax at a Glance


Moldova is approaching middle-income status, and based on its growth rate of 6.8 percent in 2011, the

economy has made a full recovery from the 2008-2009 global financial crisis.

The massive inflow of remittances plays an important role in Moldova‘s economy due to a large share of

the work force abroad. However, remittances are expected to decline and a second engine of growth based

on exports and investment is needed to ensure that Moldova‘s economy continues to grow at a fast pace. To

support private investment and export-led growth the ruling Alliance for European Integration (AEI) has

pursued an ambitious program of structural reform, but political uncertainty has complicated its implemen-

tation.

Key challenges for structural reform include improving the investment climate, channeling remittances

into productive investments, developing the financial sector, and creating fiscal space by improving the

efficiency and quality of public services including education. Authorities are also seeking private invest-

ment in strategic sectors.


Moldova and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012




Number of field offices 35+LTO


Organization Main State Tax Inspectorate under the

Ministry of Finance of the Republic of

Moldova





53

Tax reform efforts






age.


Fiscal consolidation in 2010–11 has been strong, bringing the fiscal

deficit down to2.4 percent of GDP at end-2011. However, revenue short-

falls, due partly to the slowing economy and partly to increased losses

from tax loopholes and collection problems, and new spending commit-

ments have slowed down fiscal adjustment. Thus, strong corrective meas-

ures have been taken to close tax loopholes and offset unbudgeted expen-

diture commitments that emerged in early 2012. Continued improve-

ments in tax and customs administration, and reforms in the key areas of

the pension system, education, and public administration will be needed

to maintain fiscal sustainability in the medium term as foreign assistance

declines.

In 2011, Moldova reduced employer contribution rates for social secu-

rity.

In 2010, the rates were lowered for social security contributions paid by

employers.


Tax rates 1 3

Corruption 7 5




The ease of paying taxes in Moldova over time Source: Doing Business Database 2013

54

Year: 2012

VAT rate: 17% (to be increased to 19% in 2013)


CIT rate: 9%

PIT rate: 9% (from 2013 a higher rate of 15% has

been introduced for income above 720 euros)



Country profile

Year: 2012

Tax % of GDP: 23.9% (excl. social contribu-

tions)


VAT % in GDP: 10.8%

CIT % in GDP: 2.0%

PIT % in GDP: 3.3%



Public debt (+ guarantees) % of GDP: 65.3%




Revenue potential: 27.8% of GDP*




Tax at a Glance

Source: Annual Report of the Ministry of Finance 2011

Montenegro‘s economy has been broadly stable although fiscal and current account deficits remain unsus-

tainably high. Today, based on its 5 percent simple average MFN applied tariff, Montenegro‘s economy is

among the more liberal ones in the Europe and Central Asia (ECA) region and the upper-middle-income

country group (averages of 6.8 and 9 percent, respectively).

External indebtedness has been growing in recent years after significant write-off from main creditors

such as London and Paris Club of creditors. Real growth of output was sluggish over the past couple of

years and probably well below the potential and below the regional average.

In the meantime, there were some important privatizations, as well as significant inflow of foreign invest-

ments which are expected to enhance private sector led growth. This especially relates to service sectors

(tourism, trade and transport) which have great potential.

Its challenges ahead: on one hand, building a sustainable economic base—further reforms will strengthen

the country as an independent state. On the other hand, Building a sustainable economic base—further re-

forms will strengthen the country as an independent state.


Montenegro and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012





Large Taxpayer Unit No

Organization Government of Montenegro, Tax Ad-

ministration



functional lines



55

Tax reform efforts






Tax Administration Unofficial Payments: Taxes Tax Inspections Unofficial Payments:

Tax administration problems became apparent when it was noticed that

dated collection of income taxes and social contributions collection

dropped far more than the PIT collection, despite being levied on largely

the same tax base. Also, the liquidity squeeze was arguably affecting

taxpayers‘ ability to pay, though there were no firm data on the evolu-

tion of tax arrears. The tax arrears stood at 8.1% of GDP at end-2012.

There is scope to raise tax rates and strengthen tax administration. VAT

and income tax rates are below levels in the region. The same is true for

the tax wedge on labor. Limited rate increases would thus not signifi-

cantly impede new employment, though care needs to be taken in raising

indirect taxes in order not to heighten cost in the tourism sector. More-

over, flanking any rate increases by reducing poverty traps—for exam-

ple by introducing an Earned Income Tax Credit— would provide an

important boost for formal employment and tax collection.

In 2010, the CIT rate was cut by half, to 9 percent, and social security

tax rates to 12 percent for 2009 and 9 percent for 2010. In 2011, an

amendment to Montenegro‘s CIT law removed the obligation for ad-

vance payments and abolished the construction land charge. In 2012, Montenegro made paying taxes easier by reducing the social

security contribution rate and merging several returns into a unified one.

In 2013, the PIT higher marginal rate of 15% has been introduced on

incomes above EUR720. The VAT rate is now proposed to be increased

to 19%.


The ease of paying taxes in Montenegro over time Source: Doing Business Database 2013

Rank in 2008

Tax rates 2

Corruption 6

Tax administration 4

Customs and trade regulations 11

56

Year: 2012


5% (Reduced)

8% (Reduced)


CIT rate: 19%

PIT rate: 18% (Not exceeding 85,528 PLN)

32% (Exceeding 85,528 PLN)



Country profile

Year: 2011



VAT % in GDP: 8.1%

CIT % in GDP: 2.1%

PIT % in GDP: 4.5%












2010.




Tax at a Glance


Poland was the only economy in the EU to avoid recession during the 2008-09 global financial crisis. In

the current external environment, growth is projected to slow in 2012. However, due to its large and diversi-

fied domestic economy, Poland is expected to be less affected than other economies in Central and Eastern

Europe.

Fiscal consolidation is among Poland‘s main economic policy priorities. The Government is set to con-

tinue medium-term fiscal consolidation and pursue reforms to entrench the sustainability of social spending.

The Government has taken significant steps to improve the public financial management system. The

Bank supported the public financial management agenda in Poland through a Development Policy Loan

(DPL) series as well as technical assistance projects.

There are various dimensions of territorial inequality in Poland. The World Bank has been actively in-

volved in the regional development agenda, including knowledge-based activities, as well as the planned

financial support to municipalities.


Poland and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2010






Organization Ministry of Finance



functional lines



57

Tax reform efforts






age.


Building on the reductions of the tax wedge from 2007 to 2009 through

lowering disability contributions and personal income taxes, Poland has

taken further measures to preserve employment and promote job creation.

The key challenges now facing Poland will be to enhance the quality and

efficiency of public finances, increase the supply of relevant and skilled

labor, and strengthen the business environment by strengthening tax collec-

tion in efficient and equitable manner and further lowering the high tax

burden, not least on labor. A lower tax burden and simpler tax system is

needed to encourage formal private sector activity.

This should include a simplification of Poland‘s onerous legal, tax and

administrative environment for entrepreneurship and business develop-

ment. Also, better tax compliance and broader tax base due to tax wedge

reduction.

The combination of lower expenditures, a lower overall tax burden, and a

declining share of direct taxes in the structure of tax receipts, would en-

hance long-term growth prospects although further budget neutral tax and

expenditure cuts would be desirable given the still quite large public sector.

In 2010, social security taxes were cut for businesses, and the value

added tax (VAT) law was simplified.


Tax rates 1 1

Corruption 6 8




The ease of paying taxes in Poland over time Source: Doing Business Database 2013

58

Year: 2012


5% (Reduced)

9% (Reduced)


CIT rate: 16%

PIT rate: 16%



Country profile

Year: 2011



VAT % in GDP: 8.7%

CIT % in GDP: 2.2%

PIT % in GDP: 3.3%












2010.




Tax at a Glance


Romania‘s prudent macroeconomic management has enabled it to recover quickly from the global fi-

nancial crisis. There are risks to maintaining growth, and they include uncertainty in the Eurozone, exports

markets, political developments in the context of elections, and low absorption of EU funds.

Improvements in revenue collection, optimization of expenditures, better targeted assistance to the poor

and vulnerable, stringent expenditure controls, and further measures will be critical to reach its deficit ob-

jective.

Romania‘s structural reform priorities in 2011-12 include public finance, energy and health. There are

risks for the fiscal stability due to losses of potential revenue and arrears, risks to energy security and eco-

nomic growth due to interruptions of supply, and risks to fair competition, due to distortion of competition

in the downstream markets.

Romania joined the International Bank for Reconstruction and Development (IBRD) in 1972, the Inter-

national Finance Corporation (IFC) in 1991, and the Multilateral Investment Guarantee Agency (MIGA) in

1992. The World Bank has been active in Romania for almost 40 years.


Romania and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2010


Number of taxpayers 7.7 million





Organization National Agency for Fiscal Administration



functional lines

Relationship with MOF The tax administration is established as a (semi

-) autonomous authority

59

Tax reform efforts







In Romania, the fight against tax evasion is a goal of ―national secu-

rity‖, highlighting the ongoing problem of tax collection in Romania,

Romanian Finance Minister Bogdan Dragoi explained that strengthening

measures to combat tax evasion would enable the government to be

more flexible on investment spending, while strictly adhering to the

budget deficit target in 2012 of 1.9% of GDP.

The government is seeking to strengthen tax collections, mainly

through improved administrative measures. Despite high rates for the

VAT and social security contributions, the narrow tax base and weak

compliance have reduced revenue yields in Romania compared to re-

gional peers. The tax authority has begun integrating social contribu-

tions with tax collections. Measures to streamline the tax system for

capital gains and for the sale of bank receivables have been enacted.

Additional measures will be undertaken, including moving VAT collec-

tion onto a cash accounting basis for small businesses, revising the base

for property taxes, and enlarging the tax base in agriculture and for the

self-employed. Administrative measures will also be undertaken, with

technical assistance from the IMF and the World Bank, to improve tax

collection. The authorities agreed that new tax measures such as the

possible introduction of a progressive tax regime will be discussed with

the IMF and the EU prior to implementation.

In 2010, Labor taxes were increased.

In 2011, Romania introduced tax changes, including a new minimum

tax on profit, that made paying taxes more costly for companies.

In 2012, Romania made paying taxes easier for companies by intro-

ducing an electronic payment system and a unified return for social se-

curity contributions. It also abolished the annual minimum tax.


Tax rates 1 1

Corruption 3 3




The ease of paying taxes in Romania over time Source: Doing Business Database 2013

60

Year: 2012


10% (Reduced)


CIT rate: 20%

PIT rate: 9%/13%/15%/30%/35%



Country profile

Year: 2011



VAT % in GDP: 6.0%

CIT % in GDP: 4.2%

PIT % in GDP: 3.7%






Non-oil deficit % of GDP: -8.8%






2010.




Tax at a Glance


Russia is an upper middle-income country that strives to move to a high-income status. In the period since 2005, the per capita GDP of Russia doubled to approximately US$ 10,360 in 2010. The poverty rate was at 12.6 percent at the end

of 2010, and is projected to drop to 11.6 percent in 2012 as the economy continues to recover. The unemployment rate

has also declined, reaching 6.6 percent on average in 2011. In 2011, the country recovered its pre-crisis output level and returned to a fiscal surplus. Russia is the top producer

and number two exporter of oil, so when oil prices plummeted during the crisis it served as a stark reminder of the Gov-

ernment‘s over-dependence on oil and gas and the need to diversify. Russia still faces some short-term challenges. It remains vulnerable to a prolonged recession in Europe that could

trigger a global slowdown. Russia may also face fiscal pressure if the prices for its main commodity exports decline due

to a slowdown in global demand. In the medium and long term, Russia‘s growth will depend on the success of establishing a new growth model that

addresses two critical challenges: increasing the competitiveness of the economy and fostering innovation to diversify the

economy; and coping with demographic change pertaining to Russia‘s declining and aging population. Russia‘s longer-term challenge is to sustain high rates of economic growth in spite of declining oil and gas production

and a shrinking workforce. This calls for a policy of modernization across many areas: business environment, innovation,

public administration, and social services.


Russian Federation and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012







Organization Federal Tax Service (the FTS of Russia)





61

http://www-wds.worldbank.org/external/default/main?pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&theSitePK=523679&entityID=000356161_20110817002929&searchMenuPK=64187283&theSitePK=523679

Tax reform efforts


Key issues Source: Ernst & Young 2013 Regional Ranking of Problems Source: BEEPS





Russia moved up 41 places in the tax administration ranking of the World Bank and IFC‘s report, Doing Business 2013: Smarter Regulations for Small-

and Medium-Sized Enterprises, from 105th in 2011 to 64th in 2012, the fastest

progress made by any country in the world over the course of the last year.

Despite the rapid gains Russia has made in the field of tax administration, the

country still ranks 64th in the world–a sign that much remains to be done.

In 2012, the most notable change in the area of tax administration was a shortening of the time period for VAT reimbursement. Ernst & Young survey

noted a decrease in the number of respondents who waited more than one year to

be reimbursed. While this is certainly a welcome development for companies doing business in Russia, further progress in improving the country‘s tax climate

will depend more on the experience of business people on the local level.

Taxpayers in Russia continue to experience a difference between the tax system on paper, which is comparatively favorable to doing business, and the

tax system that they experience on a day-to-day basis. In order to improve the

situation, the government will need to focus on bringing consistency to the tax code and achieving a better, more consistent, service experience for taxpayers on

the local tax administration level.

In 2010, the corporate income tax rate was cut from 24 percent to 20 percent. In 2012, Russia increased the social security contribution rate for employers.


Tax rates 2 2

Corruption 3 3




The ease of paying taxes in Russian Federation over time Source: Doing Business Database 2013

62

Year: 2012

VAT rate: 18%

VAT threshold: 46,500(US$ equiv.)

CIT rate: 15%

PIT rate: 10% (if all income earned exceed the

threshold of 3 average annual wages)

PIT rate: 15% (if all income earned exceed 6

annual average wages)



Country profile

Year: 2011



VAT % in GDP: 10.4%

CIT % in GDP: 1.2%

PIT % in GDP: 4.6%











Tax at a Glance


Serbia has passed through a period of dramatic change during the previous decade, managing a rapidly evolving politi-cal and economic environment. Today, Serbia is the EU candidate country, reflecting the significant progress made so far

in structural and institutional reforms. Serbia has pursued these reforms while struggling not only with typical transitional

issues (like privatization, restructuring of the real sector of economy, reconstruction of infrastructure etc) but also with the impact of the international financial crisis, which led to a 50 percent spike in poverty and doubling of unemployment

in Serbia. As in many countries, the challenge is translating tenuous economic recovery into jobs and poverty reduction

in a tight fiscal environment. Serbia needs to become more competitive and increase productivity. Serbia has sustained fiscal discipline, including implementing difficult measures like wage and pension freezes begin-

ning in 2009, which was supported by a 15-month IMF Stand-by Arrangement (SBA). In September 2011, it secured

IMF support for a new precautionary 18-month SBA with potential support of €1.45 billion. Growth in Serbia for 2011 is estimated at close to 2 percent, but is expected to go down to 0.5 percent in 2012, reflect-

ing the recent deterioration of the economic outlook in the European Union. More robust growth rates of around 5 per-

cent are forecasted over the medium term. Going forward, Serbia‘s main challenge is to improve standards of living and tie economic recovery into jobs in a tight fiscal environment. Increasing exports, productivity, and competitiveness are

recommended to propel the country‘s economic growth.


Serbia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization Ministry of Finance and Economy of the

Republic of Serbia Tax Administration



functional lines



63

Tax reform efforts







IMF Country Report in 2010 mentioned that further changes to the

tax system were needed, particularly in strengthening tax administra-

tion. Based on these recommendations, CIT has been reformed by in-

creasing the rate from 10 percent to 15 percent and removing many of

the tax privileges..

Tax administration reform. The risk management unit at the tax

administration agency should adopt a fully integrated taxpayer compli-

ance strategy that is based on the identification of the major risks to

revenue and appropriate resource allocation to ensure the highest impact

on collections. The strategy should focus on improving voluntary com-

pliance and reducing noncompliance. E-filing has been introduced for

all major taxes.

2012 has been a dynamic year. Some reforms in the tax policy has taken

place in the last couple of years. VAT has been reformed in terms of

payment frequency and rates. CIT rate was increased from 10 percent to

15 percent. E-filing has been introduced for all major taxes.


Tax rates 2 3

Corruption 4 1




The ease of paying taxes in Serbia over time Source: Doing Business Database 2013

64

Year: 2012


10% (Reduced)


CIT rate: 19%

PIT rate: 19%



Country profile

Year: 2011



VAT % in GDP: 6.8%

CIT % in GDP: 2.4%

PIT % in GDP: 2.5%












2010.




Tax at a Glance


Following a deep but relatively short recession, Slovakia‘s economy is returning to robust growth. The

strong economic rebound in 2010 and an upbeat outlook shift the policy focus from crisis prevention to

normalization of policies with medium-term focus.

Real GDP growth swung from a negative 4.7 percent in 2009 to 4 percent in 2010. Slovakia benefited

from the surge in global demand for manufacturing goods. External competitiveness has remained robust

and the exchange rate is broadly in equilibrium. Financial conditions and the situation of the financial sector

have improved. CPI inflation dropped to among the lowest in the euro zone in 2010, but jumped in early

2011. Notwithstanding the robust GDP growth, the general government deficit remained high in 2010, at 7

¾ percent of GDP.

The outlook is for robust balanced growth, but significant risks remain. Notwithstanding, because Slova-

kia‘s exports to Germany are largely intermediate products for goods with export destinations outside the

EU, the impact of the projected slowdown in Germany would be limited. Overall, real GDP is projected to

grow by about 3 ¾ percent in 2011 and by about 4 ¼ percent in 2012–15, among the strongest perform-

ances in the EU but still significantly below the pre-crisis rate of expansion.


Slovak Republic and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization Financial Directorate of the Slovak Re-

public

Electronic filing No


functional lines Relationship with MOF The tax administration is established as a


65

Tax reform efforts






Steps to harmonize and simplify social security contributions and to

unify revenue collection could be complemented with efforts to broaden

the tax base and improve the efficiency of VAT collection. Efforts to

remove various tax deductions and exemptions should continue.

The VAT revenue, as percentage of GDP, is the lowest in the region,

despite having comparable rates, indicating an implementation gap and

the need for improving VAT administration and harmonizing tax collec-

tions. Aligning the collection of income and social contributions could

also help enhance the efficiency of tax collection. However, net revenue

gains from harmonization, unified collection and improved VAT admini-

stration would be slow to materialize and should not be expected to con-

tribute to the 2012–13 consolidation effort.

There are no tax reforms in the recent four years, from year 2009 to

year 2012.


Tax rates 3 1

Corruption 2 2




The ease of paying taxes in Slovak Republic over time Source: Doing Business Database 2013


66

Year: 2012


8.5% (Reduced)

VAT threshold (Businesses established): 31,950

(US$ equiv.)

CIT rate: 20%

PIT rate: 16% (Not exceeding €7,841)

27% (Not exceeding €18,534)

41% (Exceeding €18,534)



Country profile

Year: 2011



VAT % in GDP: 8.4%

CIT % in GDP: 1.7%

PIT % in GDP: 5.6%












2010.




Tax at a Glance


Slovenia experienced one of the sharpest GDP declines in the euro area during the crisis. Economic

growth has been slowly recovering on the back of external demand. Real GDP growth reached 1.2 percent

in 2010. Weak domestic demand led to negative core inflation and greatly reduced the current account defi-

cit. The current account deficit shrank from 6.7 percentage points of GDP in 2008 to 1.2 in 2010, reflecting

mainly the end of the construction boom.

The political context has not been favorable to the implementation of structural reforms. The political

support for labor market and pension reforms is weak. Trade unions succeeded in holding a referendum on

the recently approved revisions to pension and labor market legislations in spring. Upcoming elections in

2012 are also likely to complicate reform implementation.

Policy discussions focused, for the short term, on the strength of the recovery in the context of delever-

aging, bank vulnerabilities, and the fiscal exit strategy. For the medium term, the discussions were focused

on pension reform and competitiveness.


Slovenia and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization Tax Administration of the Republic of

Slovenia



functional lines



67

Tax reform efforts


Key issues Source: IMF Working Paper 2006 Regional Ranking of Problems Source: BEEPS




leakage.


Labor taxation in Slovenia is among the highest and most progressive

in Europe. Taxes include the progressive personal income tax and payroll

tax—the latter paid by employers—and social security contributions. The

tax wedge is high relative to the averages in the EU-15 and OECD. Fur-

thermore, the Slovene personal income tax system is very progressive,

with the top rate, at 50 percent, among the highest in Central Europe.

The Slovene authorities are planning a tax reform whose aims are

broader than increasing labor participation. Their main objective is to

decrease tax pressure, particularly for workers at the high end of the in-

come distribution, in order to spur both labor supply and demand. This

would be achieved by reducing tax rates and flattening the tax schedule.

However, it is not clear that this reform would increase labor supply

among low-wage earners as well. Such outcome would depend on how

the reform affects the eligibility and amount of benefits, thereby high-

lighting the importance of reforming the tax and benefit systems simulta-

neously to create proper work incentives and boost labor participation.


Tax rates 2 1

Corruption 8 13




The ease of paying taxes in Slovenia over time Source: Doing Business Database 2013

In 2011, Slovenia abolished its payroll tax and reduced its corporate income tax rate.

68

Year: 2011

VAT rate: 18%


PIT rate: 13%

CIT rate: 15% for industry sector

25% for all others


GDP Per Capita (Current US$): 935 (Year: 2011) Low income

Country profile

Year: 2011



VAT % in GDP: 9.3%

CIT % in GDP: 1.4%

PIT % in GDP: 1.9%






Primary balance % of GDP: %






2010.




Tax at a Glance


Tajikistan continues to recover from the 2009–10 global economic crisis, which negatively affected in-

ward remittances, exports of such key products as aluminum and cotton, and foreign direct investment.

Despite significant external shocks during the first half of the year, real GDP growth reached 7.4 percent in

2011, up from 6.5 percent in 2010. A recovery of inward remittances has been key—fueling domestic de-

mand and activity in services and construction. Agricultural production was also stronger than expected,

despite low precipitation at the beginning of the year. However, in response to increased international food

and fuel prices, headline inflation rose to a peak of 15 percent by May 2011, but declined to 9.3 percent by

end-December, as international prices stabilized.

Economic prospects in 2012 are good, but downside risks from a potential global or regional slowdown

remain. Growth is projected to reach 6 percent and inflation is expected to decline gradually in line with

global food prices. However, the systemic risks, together with potential for other chronic shocks (drought,

natural disasters and regional trade disputes), argue for fiscal consolidation, a forward-looking monetary

policy, exchange rate flexibility, and reforms to bolster competitiveness and investment. Vulnerabilities in

the financial and state enterprise sectors could also pose a fiscal risk and be a drag on private-sector growth.

Source: The IMF

Tajikistan and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2012






Organization The Tax Committee of the Government

Electronic filing Yes - limited

Function The tax administration HQ is organized

along functional lines

Relationship with MOF The tax administration reports directly

to the Government

69

Tax reform efforts


Key issues Source: World Bank 2012 Regional Ranking of Problems Source: BEEPS

Note: in Tax productivity is equal to the tax as a percent of the tax base (GDP or consumption) divided by the




Tajikistan faces substantial challenges in revenue collection because of

low capacity of the Tax Committee (TC) to detect tax evasion and locate

non-filers and weak capacity of the MOF to do quality tax policy analysis

and forecasting. Investment in the past to modernize the tax system has

been minimal. The low revenue performance is a huge concern and a

major macroeconomic risk for an economy that is the world‘s most de-

pendent on foreign remittances. Tajikistan needs to raise tax revenue to its

full potential, improve the efficiency of tax collection and strengthen its

tax administration. Indirect taxes generate two-thirds of revenues, pre-

dominantly through the VAT which continues to be the main contributor

to the growth in overall revenues (37 percent of total revenue) on the back

of increased import. Government has taken significant steps to improve

tax administration. Achievements include: (i) payments of taxes through

banks; (ii) self-reporting system; (iii) the LTI is organized along func-

tional lines; (iv) business registration has been greatly simplified; (v)

internal control has been improved and performance evaluation system of

local inspectorates has been developed; (vi) development of communica-

tion networks is in progress; (vii) the functional reorganization has been

piloted; (vii) the department of medium enterprises has been initiated.

Progress has been made in developing software in-house for taxpayer

registration and also for the management of taxpayer accounts. Additional

IT applications are in the process of development.

A major reform of the Tax Code was achieved in 2012 which eliminated

a large number of nuisance taxes. A USD 18 million Tajikistan Tax

Administration Reform Project (TARP) supported by the WB has been

launched in 2013. This will support reforms to improve the effective-

ness of the tax system, and help the strategic goal to improve the busi-

ness environment and attract investments. TARP will contribute toward

a more efficient, transparent and service-oriented system that will re-

duce administrative costs, improve quality of taxpayer services, enhance

voluntary compliance, and reduce the size of the shadow economy.


Tax rates 1 1

Corruption 4 3




The ease of paying taxes in Tajikistan over time Source: Doing Business Database 2013

70

http://www.worldbank.org/projects/P127807/tax-administration?lang=en

http://www.worldbank.org/projects/P127807/tax-administration?lang=en

Year: 2012


1% (Reduced)

8% (Reduced)

VAT threshold: None

CIT rate: 20%

PIT rate: 15% (Not exceeding 10,000 TL)

20% (Not exceeding 25,000 TL)

27% (Not exceeding 88,000 TL)

35% (Exceeding 88,000 TL)



Country profile

Year: 2011



VAT % in GDP: 6.3%

CIT % in GDP: 1.9%

PIT % in GDP: 3.6%

Excise % in GDP: %











2010.




Tax at a Glance

Source: 2011 Article IV Consultation

Turkey‘s economy had a soft landing in 2012 for the first time in the country‘s recent economic history, with

external and internal imbalances improving. Real GDP growth slowed to 2.2 percent in 2012, down from 8.5

percent in 2011. The contribution of domestic demand to headline growth turned negative on the back of

shrinking private investment, while net exports more than offset the slowdown in domestic demand and be-

came the major contributor to headline growth.

Thanks to the slowdown in domestic demand, the current account deficit has narrowed to reach 6.0 percent of

GDP in 2012. Despite the adjustment, Turkey‘s dependence on short-term financing for the still relatively

high current account deficit remains a concern.

Labor market outcomes have been resilient in the current growth slowdown. Unemployment has been below

the pre-crisis average of 10.3 percent for the last 16 months, while the employment rate is now at 46 percent,

a level not seen since before the 2001 crisis.

The central government budget deficit is estimated to have reached 2.3 percent of GDP in 2012 compared to

the target of 1.5 percent and 1.3 percent in 2011. The main reasons behind this deterioration are the rise in

personnel expenditures and duty losses of state owned enterprises (SOEs) as a result of delayed price adjust-

ments. The increasing rigidity of current expenditures and the cyclical sensitivity of revenues is a fiscal risk

going forward. Source: The World Bank

Turkey and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2010


Number of taxpayers

Number of taxpayers to tax staff

Number of regional offices 29 Directorates

Number of local offices Not Available


Organization Revenue Administration, Department of

Taxpayer Services



functional lines Relationship with MOF The tax administration is established as a


71

Tax reform efforts


Key issues




leakage.


Accelerated structural reforms are needed to increase potential growth

and safeguard stability. Turkey‘s business environment remains relatively

burdensome with the country ranking 71st in the 2013 Doing Business

ratings. Improving the investment climate is critical for raising Turkey‘s

low labor productivity and further boosting its export performance.

In addition, boosting domestic savings remains a priority to decrease the

country‘s dependence on external financing and improving the current

account deficit. Over the longer-term, reforms to enhance energy efficiency

and invest in alternative energy sources hold potential to reduce depend-

ence on oil and gas imports and further reduce risks of exogenous shocks.

In 2012, Turkey lowered the social security contribution rate for com-

panies by offering them a 5% rebate.


Tax rates 1 1

Corruption 4 2




The ease of paying taxes in Turkey over time Source: Doing Business Database 2013

72

Year: 2012


Rate will be reduced to 17% in 2014


CIT rate: 21%

PIT rate: 15% and 17% + simplified regime for

entrepreneurs –physical persons doing specific

economic activities.



Country profile

Year: 2010



VAT % in GDP: 9.0%

CIT % in GDP: 4.1%

PIT % in GDP: 4.7%


Social contributions % of GDP: %










2010.




Tax at a Glance

Source: IMF Country Report 2011

Developments in the Euro area and the global economy have begun to affect Ukraine. According to the

Statistics Service, real GDP decelerated to 4.7 percent in the fourth quarter of 2011. Cumulative growth for

the whole of 2011 slowed to 5.2 percent. The current account (CA) deficit has continued to widen, while

external financing has become more challenging. The base case scenario anticipates growth to slow to 2.5

percent in 2012 as Ukraine enters a period of lower external demand, higher funding pressures, and instabil-

ity in international markets.

Downside risks to this forecast are unusually high. The increased uncertainty in international financial

markets has resulted in a lower appetite for risk, and investors have opted to reduce their exposure to

emerging markets, including Ukraine.

The World Bank's Country Partnership Strategy (CPS) for Ukraine for 2012-2016, prepared in partnership

with the Government of Ukraine and in consultation with the private sector, civil society and donors, was

endorsed by the World Bank's Board of Directors in February 2012. The World Bank Group‘s assistance

will be concentrated in two areas: improving public services and public finances and improving the business

climate to unlock Ukraine‘s economic potential.


Ukraine and comparator economies rank on the ease of paying taxes Source: Doing Business Database 2013


Indicator 2010







Organization State Tax Service of Ukraine



functional lines



73

Tax reform efforts







In Ukraine, significant progress has been made in modernizing state tax

services, including implementation of a centralized web-based solution

for registering taxpayers, filing and paying taxes, and tax audit execu-

tion. Also, there has been some progress in automating VAT refunds

with latest data through end-May 2012 showing about 60 percent of

receipts refunded via the automated system, but some companies con-

tinue to report overdue refunds. New tax code was approved in 2010 that gradually lowers corporate

tax rates (which dropped 2 percentage points on January 1) and VAT in

line with the authorities‘ objective of lowering the tax burden. However,

the tax system continues to suffer from loopholes, evasion, and uneven

administration. Besides, high marginal tax rates and compliance costs

compared with other countries.

Measures need to be taken to improve tax administration to increase

taxpayers‘ trust in the tax system and reduce widespread tax avoidance.

In 2009, the tax burden on businesses was eased by reducing several social security tax rates including: pension fund, social security fund, and social insurance for accidents at work. Thanks to electronic tax filing systems, the time to pay taxes was reduced. In 2011, Ukraine eased tax compliance by introducing and continually enhancing an electronic filing system for value added tax. In 2012, Ukraine made paying taxes easier and less costly for firms by revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions.


Tax rates 1 1

Corruption 3 2




The ease of paying taxes in Ukraine over time Source: Doing Business Database 2013

74

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