Ben Aris in Moscow -
Central and Eastern Europe and the Commonwealth of Independent States (CEE/CIS) made the most progress in reforming their tax systems last year, according to a PriceWaterhouseCoopers (PwC) survey released on November 20.
"The economies in the [CEE/CIS] region showed the largest fall in both the time to comply [with tax payment rules] (220 hours) and the number of payments (25.1 payments), and apart from the Middle East have the largest fall in the Total Tax Rate (15.7%)," said the report "Paying Taxes in 2014", which is based on the World Bank's "Doing Business" survey.
This compares with the 268 hours, 26.7 payments and 43.1% global averages for the time it takes to pay, number of payments needed and total tax rate to be paid, respectively.
Indeed, there are several surprises on the list. Ranked at 56 out of 178, Russia does not only better than many of its peers in term of the ease and efficiency of paying taxes, but is ranked well ahead of not only the other BRIC countries but also the US.
Perhaps the biggest surprise is Kazakhstan, which is ranked at 18 in the world, just behind the UK - one of the simplest and easiest places to pay taxes in the world. But its neighbour Tajikistan is ranked bottom of the list at 178.
Another surprise is how badly some of the powerhouses of the region do. Poland trails way behind Russia at 113, on a par with its Central European neighbours Czech Republic and Hungary.
But there is no surprise that the Baltic states along with Georgia, the bastions of liberal reform in the former Socialist Union, are all ranked in the top third of the list, beating many of their Western European peers.
In general, all the countries in the CEE/CIS region are trying to make life easier for their companies by reducing taxes. While corporate taxes are low in most countries of the region (and only 16% in Ukraine, one of the lowest), labour taxes remain very high and consistently accounted for about half of each countries' total tax rate, driving up the overall number, with profit and "other" taxes accounting for about a quarter each. "All three types of tax have shown a steady decline over the last nine years, though the rate of decline slowed from 2009 for all types of tax and there has been a slight increase across all three taxes in 2012," the report says.
Belarus made the biggest reductions in 2012, cutting its corporate income tax rate from 24% to 18%, while Russia cut its pension contribution from 26% to 22%. Moldova was the country that made the biggest increases, hiking its corporate income rate from 0% to 12%.
Russia is amongst the biggest improvers. This year Russian cosmonaut Pavel Vinogradov, an International Space Station crewmember, has become the first person ever to pay taxes from space using Sberbank's online banking system to pay his land tax. Indeed, in the last few years the Russian government has put most of its tax and utility payments online, which Russians have taken to using enthusiastically, with three-quarters (76%) of tax returns filed online in 2012.
In the region, 12 out of 17 economies have adopted online filing and payment systems. The use of electronic filing systems covering corporate income tax, VAT, personal income tax and all mandatory contributions has been the key driver for the fall in time to comply in all type of taxes, PwC found. "The [Russian] Federal Tax Service has continued to widen the scope and reach of electronic services and to ensure their widespread use. In total, there are now more than thirty services made available to individuals and legal entities. These include tax information sources, tax office appointment scheduling systems, issuing of various tax certificates, online payments and electronic registration."
Despite the flat rate of personal income tax at just 13%, Russia's total tax take is higher than the global average at 50.7%. However, thanks to the simplicity of the Russian tax system these taxes are a lot easier to pay, taking only 177 hours to complete. And with only seven payments to make, Russia is amongst the best in the world on these two scores.
Turkey has also made big strides and was ranked at number 71 overall. Its tax regime is also below the global average with 226 hours needed to pay, a total of 11 payments required and total tax rate of 40.2%.
Like Russia, Turkey has been moving its tax returns online since 2004 and this change has, "saved taxpayers time on the preparation and filing of their tax returns and enabled electronic record keeping at the tax office," the report says.
One of the more successful programmes was a pilot programme launched in 2008 that allows the telecommunications ministry to issue electronic invoices that significantly cut down the amount of paperwork needed. The scheme was so successful the government is now looking to extend electronic invoicing to more branches of government and companies. "The ultimate aim is to create cost efficiencies for companies as they are obliged under current regulations not only to issue hard copy invoices, but also to store them for ten years," the report says.
Ukraine remains ranked near the bottom of the league at 168 out of 178. It takes a whopping 390 hours to pay taxes, 28 separate payments are required and there's a total tax take of 54.9%. However, PwC found that the things were even worse before and Ukraine has made some of the biggest improvements of any country in the region.
The government is trying to streamline the system. It introduced electronic tax returns this year and have also reduced the requirement from filing tax returns quarterly to once a year now. "Electronic filing is now available for almost all tax (and social security) returns but this is not fully reflected in the study as it has not yet been taken up by majority of taxpayers for all filings," the report says.
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