Posted on November 18, 2016
THE Philippines rose 11 places in a global ranking of ease of tax compliance for businesses, according to the World Bank Group (WB) and PricewaterhouseCoopers (PwC).
Using 2015 data, the Paying Taxes 2017 study placed the Philippines 115th of 180 countries. A year earlier, the country was 126th out of 189 countries.
The United Arab Emirates and Qatar tied for the top ranking, followed by Hong Kong, Bahrain, Ireland, Kuwait, Denmark, Singapore, Macedonia, and the United Kingdom.
At the bottom were Chad, Mauritania, Central African Republic, Bolivia, Guinea, Nigeria, Brazil, Equatorial Guinea, Argentina, and Benin.
With the global total tax rate falling to 40.6% and the Asia-Pacific average at 36.2%, the total tax rate in the Philippines remained unchanged at 42.9%. Profits tax in the Philippines was 20.3%, while the labor tax rate was at 8.7%.
“The small decrease in the (global) Total Tax Rate results from 44 economies increasing taxes while 38 recorded a reduction. It also represents a combination of a decrease in ‘other taxes’ offset by small increase in both profit and labour taxes,” PwC report said.
The time it takes for Philippine medium-sized companies to comply with tax obligations totaled 186 hours, an improvement from the 193 hours recorded a year earlier.
Globally, compliance time declined by 8 hours to an average of 251 hours.
“The reduction in the global average for time to comply of 8 hours is higher than in recent years reflecting ongoing improvements in electronic tax systems, and in particular as a result of reforms implemented in Brazil,” said the World Bank and PwC.
“Economies in the Asia-Pacific region take the longest to comply with a corporate income tax audit,” said the report, revealing that compliance in duration terms took 24 hours.
The World Bank and PwC said that “globally, the most common feature of tax reforms in the past year was the introduction or enhancement of electronic systems for filing and paying taxes. Twenty-six economies implemented such changes. Jamaica was the top reformer, reducing the number of payments by 26 to 11.”
The study showed that in some economies the post-filing processes for value-added tax (VAT) and corporate income tax (CIT) refunds are considered the most tedious and time-consuming processes for businesses.
“In some cases the length of the processes can create cash flow and administrative delays for companies of more than a year,” WB and PwC said in a statement, adding that interactions between a company and their tax authorities after filing tax returns “can be some of the most challenging.”
The report listed 162 economies with a VAT system, with 93 having a VAT refund process.
“A fast and efficient process can be critical to ensure that a company does not face cash flow difficulties,” the World Bank and PwC said, adding that it takes more than 14 hours to request a VAT refund another five months — almost 22 weeks — to receive the refund.
Low-income countries take almost 27 hours to comply with a VAT refund request, 19 hours longer than the 8-hour compliance of high-income economies.
Under the National Internal Revenue Code (NIRC) of the Philippines, the tax bureau has 120 days to resolve a fund claim, after which the taxpayer has 30 days to appeal the Bureau of Internal Revenue’s (BIR’s) decision or the “unacted claim” to the Court of Tax Appeals (CTA).
“A VAT refund triggers an audit in 70% of economies, of which over half (58%) will go through a comprehensive audit,” said the report.
According to the analysis, 180 economies levied corporate income tax; in 74 of these a tax audit is triggered after voluntary corrections were made in corporate income tax (CIT) returns.
On average, a company takes around 17 hours to correct errors in the CIT return and more than 17 weeks to hear of an impending audit.
“Examining the difference between low and high income countries, the study finds that in low income economies it can take more than twice as long to comply with procedures to correct CIT errors, and that low income countries are twice as likely to conduct an audit,” the study showed. — Danica M. Uy