Harris & Co Accountants in Northampton report that the steady lowering of corporation tax has seen the UK¡¯s position in the global ranking of effective business tax systems improve for the second year running, but around the world employment taxes now form the greatest share of the tax burden for businesses, according to research by PwC and the World Bank.
The Paying Taxes study ranks 189 economies by assessing the tax costs and compliance burden for a case-study manufacturer. The UK is now 14th in the league table, coming above Luxembourg and Switzerland but below Hong Kong, Singapore and Ireland. As well as the cuts to corporation tax, the UK also scores relatively well on compliance processes.
Kevin Nicholson, head of tax at PwC, said: "The corporate tax reforms are having the intended effect of bringing business to the UK. With further reforms still to take effect there"s a chance we could make the top 10 when the corporation tax rate reaches 20% in April 2015. Reducing the compliance burden would help too."
The research shows that employment taxes now account for the largest chunk of tax costs for businesses worldwide (38%), as other taxes have fallen. Back in 2005, labour taxes made up the smallest slice (32%) of a typical medium sized company"s tax bill.
The fall in total tax rates globally, which was about a 1% drop each year, has tailed off according to the survey which says that just as many countries have increased tax rates as have reduced them.
The largest fall in tax rates was in the Democratic Republic of the Congo, driven by its switch from a cascading sales tax to VAT. If this reform is stripped out, the global total tax rate would have increased this year by 0.2 percentage points, the first rise since the study began nine years ago.
Over the lifetime of the study it has become easier for business to pay all its taxes - the cost has fallen (by 9 percentage points), as has the number of tax payments (7 fewer) and the compliance time (by 55 hours).
The research suggests tax complexity varies sharply between countries, with the Middle East having the least demanding tax systems. For example, in the United Arab Emirates it takes on average 12 hours annually to deal with all the taxes that apply compared to a the global average of 268 hours. In contrast, in Brazil it takes 2,600 hours, or more than a year for someone working on this full time.