Doing Business Reforms
ENHANCING TAX COMPLIANCE SYSTEMS
Properly developed, effective taxation systems are crucial for a well-functioning society. In most economies, taxes are the main source of revenue to fund public spending on education, health care, public transport, infrastructure and social programs, among others. Tax policy is one of the most contentious areas of public policy. A large body of theoretical and empirical work examines the effects of high tax rates and complex fiscal systems. Although determining the optimal tax system can be challenging because context matters when economies want to maximize their welfare, there is less uncertainty—from both theoretical and empirical perspectives—about the distortionary effects of high taxes and cumbersome tax systems. A good tax system should ensure that taxes are proportionate and certain (not arbitrary) and that the method of paying taxes is convenient for taxpayers. Lastly, taxes should be easy to administer and collect.
Mauritius made the most significant advances in tax payment systems in calendar year 2017. The Economic Development Board of Mauritius—which is mandated to promote and facilitate investment in the country —has been working in recent years on improving Mauritius' performance in the Doing Business indicators. In the area of paying taxes, the government has focused its efforts on the postfiling index. In April 2017, the government of Mauritius issued a new Guideline for VAT Repayment Claims based on the level of company risk. Under the Guideline, low-risk companies can be deemed eligible for a fast-track refund process without any additional review or audit and the repayment of the refund is made in five calendar days. Firms assessed to the second level of risk—which include those with a simple claim for a VAT cash refund like the Doing Business case study—are also refunded quickly (within 15 calendar days). These claims would be subject only to a desk review of the documents without any interaction with the taxpayer. For those cases assessed as high-risk, the tax authority conducts an audit before approving or rejecting the repayment claim.
The Guideline also allows VAT-registered persons to send (at the time of submitting a return) a list of taxable inputs as per a new template for VAT repayment that is available online from the Mauritius Revenue Authority. The Authority also upgraded its online platform for VAT returns, allowing them to be submitted electronically. As a result of these reforms, the revenue authority no longer refers requests for VAT refunds similar to the Doing Business case study for further investigation.
Finally, per a new regulation set by the Miscellaneous Provisions Act of 2016, as of January 1, 2017, taxpayers can amend their corporate income tax returns through the online platform. Taxpayers previously had to prepare a hard copy of the amended return and physically submit it to the revenue authority.
Worldwide, the most common feature of reforms in the area of paying taxes in 2017/18 was the implementation or enhancement of electronic filing and payment systems. In addition to Mauritius, 15 other economies—Azerbaijan, the Bahamas, Bhutan, China, Côte d'Ivoire, Cyprus, Finland, the Islamic Republic of Iran, Jordan, Kenya, Panama, Sri Lanka, Thailand, Togo and Turkey—introduced or enhanced systems for filing and paying taxes online. China eased tax compliance on businesses by implementing a series of administrative measures to facilitate the preparation and filing of tax declarations, including a tax consultation and tutorship system, simplified corporate income tax and value-added tax declaration forms, e-invoices, optimized online declaration systems and new channels for the payment of taxes.
The use of electronic tax filing and payment systems has increased substantially since 2006, with the most notable progress in the economies of Europe and Central Asia. In this region, 14 years ago the average compliance time was 473 hours per year. Thanks to the use of electronic systems for filing and paying taxes, economies in this region spent on average 227 hours on tax compliance in 2017. Sub-Saharan Africa remains the region with the smallest share of economies using electronic filing or payments. However, in 2017 the use of online systems for filing and payment of taxes resulted in efficiency gains in several economies in the region, including Côte d'Ivoire, Kenya, Mauritius and Togo. The OECD high-income group has the highest prevalence of electronic systems, with 94% of economies having adopted them.
Other economies directed their reform efforts at reducing the financial burden of taxes on businesses and keeping tax rates at a reasonable level to encourage private sector development. Ecuador, for example, introduced a Tax Incentive Law in 2017 allowing businesses to deduct an additional 100% on amounts paid to cover private medical insurance or prepaid health care for employees. France made paying taxes less costly by lowering rates for both corporate income tax and the territorial economic contribution. France also reduced the social security contributions paid by employers. Under new classification criteria introduced in Uzbekistan, small enterprises can pay a single social contribution at a fixed rate (but this cannot be less than 65% of the minimum wage for each employee).
PAYING TAXES REFORMS BY ECONOMY DB2008-DB2019