This topic records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures the administrative burden in paying taxes and contributions. The most recent round of data collection for the project was completed on June 30, 2017 covering for the Paying Taxes indicator calendar year 2016 (January 1, 2016 – December 31, 2016).

Last year (Doing Business 2017) the scope of data collection was expanded to better understand the overall tax environment in an economy. The questionnaire was expanded to include new questions on post-filing processes: VAT refund and tax audit. The data shows where postfiling processes and practices work efficiently and what drives the differences in the overall tax compliance cost across economies.

The new section covers both the legal framework and the administrative burden on businesses to comply with postfiling processes.  See the methodology for more information.

Why it Matters


Oliver Wendell Holmes, a former U.S. supreme court justice, said, “Taxes are what we pay for a civilized society.” Governments need sustainable funding for social programs and public investments to promote economic growth and development. Programs providing health, education, infrastructure and other amenities are important to achieve a common goal of a prosperous, functional and orderly society. And they require that governments raise revenues. This is so even in low-income economies that often receive large amounts of external assistance to help meet their needs. Taxation not only pays for public goods and services; it is a key ingredient of the social contract between citizens and the economy and thus key to building an effective government. How taxes are raised and spent shapes the legitimacy of governments by promoting their accountability to taxpaying citizens and by encouraging effective administration and good public financial management (1).

All governments need revenue, but the challenge is to carefully choose not only the level of tax rates but also the tax base. Governments also need to design a tax compliance system that will not discourage taxpayers from participating. Recent firm surveys in 147 economies show that companies consider tax rates to be among the top 5 constraints to their business, and tax administration to be among the top 11 (2). Firms in economies that rank better on the ease of paying taxes tend to perceive both tax rates and tax administration as less of an obstacle to business (figure 1).


The amount of the tax cost for businesses matters for investment and growth. Where taxes are high, businesses are more inclined to opt out of the formal sector. A recent study shows that higher tax rates are associated with fewer formal businesses and lower private investment. A 10 percentage point increase in the effective corporate income tax rate is associated with a reduction in the ratio of investment to GDP of up to 2 percentage points and a decrease in the business entry rate of about 1 percentage point (3). A tax increase equivalent to 1% of GDP reduces output over the next 3 years by nearly 3% (4). Research looking at multinational firms’ decisions on where to invest suggests that a 1 percentage point increase in the statutory corporate income tax rate would reduce the local profits from existing investment by 1.3% on average (5). A one percentage point increase in the effective corporate income tax rate reduces the likelihood of establishing a subsidiary in an economy by 2.9% (6).

Profit taxes are only part of the total business tax cost—around 44% on average. In República Bolivariana de Venezuela, for example, the nominal corporate income tax is based on a progressive scale of 15–34% of net income, but the total business tax bill, after taking into account deductions and exemptions, is 64.7% of commercial profit because of 1 other profit tax, 4 labor taxes and contributions, 1 turnover tax, 1 property tax and 1 other tax.

Keeping tax rates at a reasonable level can encourage the development of the private sector and the formalization of businesses. This is particularly important for small and medium-size enterprises, which contribute to growth and job creation but do not add significantly to tax revenue (7). Typical distributions of tax revenue by firm size for economies in Sub-Saharan Africa and the Middle East and North Africa show that micro, small and medium-size enterprises make up more than 90% of taxpayers but contribute only 25–35% of revenue (8). Thus imposing high tax costs on businesses of this size might not add much to government tax revenue, but it might cause businesses to become informal or, in the worst case, to never exist at all.

In Brazil a tax simplification scheme for microenterprises ("SIMPLES") that consolidated several taxes, leading to a reduction in the overall tax cost of 8%, resulted in an 11.6% increase in the business licensing rate, a 6.3% increase in the registration of microenterprises and a 7.2% increase in the number of firms registered with the tax authority. Budgetary revenue rose by 7.4% as a result of increased tax payments and social security contributions. SIMPLES was also found to increase the revenues, profits, paid employment and fixed capital of formalized firms (9).

Businesses care about what they get for their taxes. Extensive and efficient infrastructure is critical for the sound functioning of an economy because it plays an important part in determining the location of economic activity and the kinds of activities or sectors that can develop. A healthy workforce is vital to an economy’s competitiveness and productivity—so investing in the provision of health services is clearly essential for economic as well as moral reasons. Basic education increases the efficiency of each worker, and good-quality higher education and training allow economies to move up the value chain beyond simple production processes and products.


The efficiency with which tax revenue is converted into public goods and services varies around the world. Recent data from the World Development Indicators and the Human Development Index show that economies with relatively low total tax rates, such as Ireland and Bulgaria, are able to generate tax revenues efficiently and convert the gains into high levels of public goods and services. The data show the opposite for Senegal and Mali. Economic development often generates additional needs for tax revenue to finance a rise in public spending, but at the same time it requires the economy’s ability to raise revenue to meet these needs. More important than the level of taxation, however, is how revenue is used. In developing economies high tax rates and weak tax administration are not the only reasons for low tax collection. The tax base is much narrower because most workers earn very low wages or are in the informal sector.


Efficient tax administration can help encourage businesses to become formally registered and the economy to grow—and thus expand the tax base and increase tax revenues. Administration that is unfair and capricious will bring the tax system into disrepute and weaken the legitimacy of government. In many transition economies in the 1990s, failure to improve tax administration when new tax systems were introduced resulted in very uneven imposition of taxes, widespread tax evasion and lower-than-expected revenue (10).

Compliance with tax laws is important to keep the system working for all and to support the programs and services that improve lives. One way to encourage compliance is to keep the rules as clear and simple as possible. Overly complicated tax systems are associated with high evasion. High tax compliance costs are associated with larger informal sectors, more corruption and less investment. Economies with simple, well-designed tax systems are able to help the growth of businesses and, ultimately, the growth of overall investment and employment (11). New research evidence shows that an important determinant of firm entry is the ease of paying taxes, regardless of the corporate tax rate. A study of 118 economies over six years found that a 10% reduction in the tax administrative burden—as measured by the number of tax payments per year and the time required to pay taxes—led to a 3% increase in annual business entry rates (12).

Low tax compliance cost and efficient procedures can make a big difference for firms. In Hong Kong SAR, China and Saudi Arabia for example, the standard case study firm would have to make only 3 payments a year, the lowest number of payments globally. In Norway it would have to make 4 payments, still among the lowest requirements in the world. In Ireland, complying with profit tax, value added tax, and labor taxes and contributions takes only 82 hours a year, around 10 working days.

Recent research found that it takes the Doing Business case study company longer on average to comply with value added tax than to comply with corporate income tax. But the time it takes the company to comply with value added tax requirements varies widely, and the research shows that differences in administrative practices and in how value added tax is implemented are key reasons for this. Compliance tends to take less time in economies where value added tax is administered by the same tax authority as the one that deals with corporate income tax. The use of online filing and payment greatly reduces compliance time. The frequency and length of value added tax returns also matter. Requirements to submit invoices or other documentation with the returns add to compliance time. Streamlining the compliance process and reducing the time needed to comply is important for value added tax systems to work efficiently (13).


Filing the tax return with the tax authority does not imply agreement on the final tax liability. Oftentimes, the ordeal of taxation starts after the tax return has been filed. Postfiling processes - such as claiming a VAT refund, undergoing a tax audit or appealing a tax assessment - can be the most challenging interactions that a business has with a tax authority. Businesses might have to invest more time and effort into the processes occurring after filing of tax returns than into the regular tax compliance procedures.


The VAT refund is an integral component of any modern VAT system. In principle, VAT’s statutory incidence is on the final consumer, not on businesses. According to tax policy guidelines set out by the OECD, a VAT system should be neutral and efficient. The absence of an efficient VAT refund system for businesses incurring in more VAT on their purchases than they collect in a given tax period on their taxable sales will undermine this goal. VAT could end up having a distortionary effect on market prices and competition and consequently constrain economic growth. (14)

Refund processes may be a major weakness of VAT systems. This was the finding of a study that examined the VAT administration refund mechanism in 36 economies around the world. (15) Even in economies where refund procedures are in place businesses often find the complexity of the process challenging. The study examined the tax authorities’ treatment of excess VAT credits, the size of refund claims, the procedures followed by refund claimants and the time needed for the tax authorities to process refunds. The results showed that statutory time limits for making refunds are crucial but often not applied in practice.

These delays and inefficiencies in the VAT refund systems are often prompted by the fear that the system might be abused and prone to fraud. (16) Moved by this concern, many economies have established measures to moderate and limit the recourse to the VAT refund system and subject the refund claims to thorough procedural checks. That is also one of the reasons why in some economies it is not uncommon for a claim for a VAT refund to automatically trigger a costly audit, undermining the overall effectiveness of the system.

The Doing Business case study company, TaxpayerCo., is a domestic business that does not involve foreign trade. It performs a general industrial and commercial activity and it is in its second year of operation. TaxpayerCo. meets the VAT threshold for registration and its monthly sales and monthly operating expenses are fixed throughout the year resulting in a positive output VAT payable within each accounting period. The case study scenario has been expanded to include a capital purchase of a machine in the month of June. This substantial capital expenditure results in input VAT exceeding output VAT in the month of June.

The results show that, in practice, only 107 of the economies covered by Doing Business allow for VAT cash refund in this scenario. This is excluding 31 economies that do not have VAT (17). Some economies restrict the right to receive an immediate cash refund to specific types of taxpayers such as exporters, embassies and non-profitable organizations. This is the case in 39 economies including Belarus, Bolivia, Colombia, Dominican Republic, Ecuador, Kazakhstan, Mali and the Philippines.

In other economies businesses are only allowed to claim a cash refund after carrying forward the excess credit for a specified period of time (e.g. four months). The net VAT balance is refunded to the business only after this period ends. This is the case in 25 economies included in Doing Business.

The legislation in other economies - typically those with a weaker administrative or financial capacity to handle cash refunds - may not permit refunds outright. Instead tax authorities require businesses to carry forward the claim and offset the excess amount against future output VAT.

Insofar as procedural checks are concerned, in 74 of the 107 economies a claim for a VAT refund will probably lead to an audit being conducted. Effective audit programs and VAT refund payment systems are inextricably linked. Tax audits (direct and indirect) vary in their scope and complexity, ranging from a full audit - which typically entails a comprehensive examination of all information relevant to the calculation of a taxpayer’s tax liability in a given period - to a limited scope audit that is restricted to specific issues on the tax return or a single issue audit that is limited to one item.

In Canada, Denmark, Italy and Norway the request for a VAT refund is likely to trigger a correspondence audit which requires less interaction with the auditor and less paper work. By contrast, in most economies in Sub-Saharan Africa where an audit is likely to take place taxpayers are exposed to a field audit in which the auditor visits the premises of the taxpayer.

As far as the format of the VAT refund request is concerned, in 51 of the 107 economies the VAT refund due is calculated and requested within the standard VAT return submitted in each accounting period. In the other economies the request procedure varies from filing a separate application, letter or form for a VAT refund to completing a specific section in the VAT return as well as preparing some additional documentation to substantiate the claim. In these economies businesses spend on average 3.5 hours gathering the required information, calculating the claim and preparing the refund application and other documentation before submitting them to the relevant authority.

Overall, the OECD high-income economies process VAT refunds the most efficient with an average of 15.9 weeks to reimburse a VAT refund (including some economies where an audit is likely to be conducted). Economies in Europe and Central Asia also perform well with an average refund processing time of 23.9 weeks. This implies that these economies provide refunds in a manner that does not expose businesses to unnecessary administrative costs and detrimental cash flow impacts.

The research conducted also showed that there is a positive correlation between the time to comply with a VAT refund process and the time to comply with filing the standard VAT return and payment of VAT liabilities. This indicates that economies whose tax systems are harder to comply with when filing taxes are more likely to be challenging throughout the process.


Tax audits have an important role in ensuring tax compliance. Nonetheless, a tax audit is one of the most sensitive interactions between a taxpayer and a tax authority. It imposes a burden on the taxpayer to a greater or lesser extent depending on the number and type of interactions (field visit by the auditor or office visit by the taxpayer) and the level of documentation requested by the auditor. It is therefore essential that the right legal framework is in place to ensure integrity in the way tax authorities carry out audits. (18)

A risk-based approach takes into consideration different aspects of a business such as historical compliance, industry and firm-specific characteristics, debt-credit ratios for VAT-registered businesses and the size of a business in order to better assess which businesses are most prone to tax evasion. One study showed that data-mining techniques for auditing, regardless of the technique, captured more noncompliant taxpayers than random audits. (19)

In a risk-based approach the exact criteria used to capture noncompliant firms, however, should be concealed to prevent taxpayers from purposefully planning how to avoid detection and to allow for a degree of uncertainty to drive voluntary compliance. (20)  Most economies have risk assessment systems in place to select companies for tax audits and the basis on which these companies are selected is not disclosed. Despite being a postfiling procedure, audit strategies can have a fundamental impact on the way businesses file and pay taxes. In order to analyze audits of direct taxes, the Doing Business case study scenario was expanded to assume that TaxpayerCo. made a simple error in the calculation of its income tax liability, leading to an incorrect corporate income tax return and consequently an underpayment of the income tax due. TaxpayerCo. detected the error and voluntarily notified the tax authority. In all economies that levy  corporate income tax - only 10 out of 190 do not - taxpayers can notify the authorities of the error, submit an amended return and any additional documentation (typically a letter explaining the error and, in some cases, amended financial statements) and pay the difference immediately. On average, businesses spend 6.0 hours preparing the amended return and any additional documents, submitting the files and making payment. In 74 economies - even following immediate notification by the taxpayer - the error in the income tax return is likely to trigger an audit.

In 40 economies this error will lead to a comprehensive audit of the income tax return, requiring additional time being spent by businesses. In the majority of cases the auditor will visit the taxpayer’s premises. On average, it takes about 77 days for the tax authorities to start the audit. Taxpayers will spend 21 hours complying with the requirements of the auditor, going through several rounds of interactions with the auditor during 9.7 weeks and wait 8.1 weeks for the auditor to issue the final decision on the tax assessment. OECD high-income economies as well as Europe and Central Asia economies have the easiest and simplest processes in place to correct a minor mistake in the income tax return. In 26 economies in the OECD high-income region a mistake in the income tax return does not automatically trigger an audit by the tax authorities. Taxpayers are only required to submit an amended return and, in some cases, additional documentation and pay the difference in taxes due. Economies in Latin America and the Caribbean suffer the most from a lengthy process to correct a minor mistake in an income tax return as in most cases it will involve an audit imposing a waiting time on taxpayers until the final assessment is issued.

1. FIAS. 2009. “Taxation as State Building: Reforming Tax Systems for Political Stability and Sustainable Economic Growth.” World Bank Group, Washington, DC.
3. Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer. 2010. “The Effect of Corporate Taxes on Investment and Entrepreneurship.” American Economic Journal: Macroeconomics 2 (3): 31–64.
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8. International Tax Dialogue. 2007. “Taxation of Small and Medium Enterprises.” Background paper for the International Tax Dialogue Conference, Buenos Aires, October.
9. Fajnzylber, Pablo, William F. Maloney and Gabriel V. Montes-Rojas. 2011. “Does Formality Improve Micro-Firm Performance? Evidence from the Brazilian SIMPLES Program.” Journal of Development Economics 94 (2): 262–76.
10. Bird, Richard. 2010. “Smart Tax Administration.” Economic Premise (World Bank) 36: 1–5.
11. Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer. 2010. “The Effect of Corporate Taxes on Investment and Entrepreneurship.” American Economic Journal: Macroeconomics 2 (3): 31–64.
12. Pontus Braunerhjelm and Johan E. Eklund, “Taxes, tax administrative burdens and new firm formation”, KYKLOS, Vol. 67 – February 2014 – No. 1, 1–11
13. Symons, Susan, Neville Howlett and Katia Ramirez Alcantara. 2010. The Impact of VAT Compliance on Business. London: PwC.
14. OECD 2014.
15. Harrison and Krelove 2005.
16. Keen and Smith 2007.
17. It is worth noting that 28 countries analyzed in Doing Business do not levy VAT.
18. OECD 2006.
19. Gupta and Nagadevara 2007.
20. Alm and McKee 2006; Khwaja, Aswasthi and Loeprick 2011.