Friday, November 08, 2013

Saudi Arabia, Qatar, UAE are the world's best tax collectors

. . . or at least that is what you might think if you read the World Bank / PWC / IFC annual survey on global taxation, entitled Paying Taxes. It's an offshoot of their widely reported Doing Business report.

This looks to us like a classic example of a corporate lobbying document, wrapped in the gravitas of one (and a half) of the world's biggest global institutions. The study looks at corporate tax rate, where lower is better; the number of tax transfers involved; and the time it takes to comply with tax laws.

Mick Moore of the Institute of Development Studies, a world expert on tax and developing countries, explains more.
"You might be a little surprised to see that in 2013 the top three rankings were awarded to the United Arab Emirates, Qatar and Saudi Arabia respectively.
Are the oil-rich kingdoms of the Gulf renowned for the quality of their tax administrations? Not in the least. Compared to most other countries, their tax administrations are skeletal. It is hard to believe that these countries provide the best taxing models for governments that actually need to raise more revenue."
These countries are sitting on oceans of underground oil and gas. Their rulers don't feel the need to tax their citizens. So they don't have too many taxes, and presumably nobody bothers too much with the pesky business of collecting them. Brilliant!

Moore also questions the wisdom of some of the indicators, summarising the findings in the Independent Panel Review of the Doing Business report, led by former South African finance minister Trevor Manuel.
"Let us take first the ‘total tax rate’. There are two major criticisms. First, it is very controversial to assume that companies are always better off if they pay less taxes. If low taxes mean that governments cannot afford to maintain roads, educate children for employment or provide a competent policing service, business – and the national economy, and human welfare – will suffer.

The second criticism is that the ‘total tax rate’ used in Paying Taxes is not a good indicator of the actual corporate tax burden. . . . Every country has a variable range of tax exemptions, tax ‘incentives’, tax holidays, tax credits, etc. There can be large differences between ‘headline’ rates and what the typical or average company actually pays."
The indicator on the number of transactions is also nonsensical, as Moore explains. The broader doing business index, of which this is a component, has its own fair share of nonsense: it does seem odd that China, despite its stellar macroeconomic performance and attraction to the world's firms, is only ranked in 91st place. 

PWC and the other members of the Big Four accountancy firms are, when it comes to discussing tax policies, lobbyists. Their clients are big corporations - and they always want their clients to pay less tax. It is part of their DNA. This is the central reason why this report is such a nonsense. Indeed, as the FT noted of the review
"The governance of the project was “insufficient”.
Lobbying in, garbage out.

Here's an idea. Cut the lobbyists out of the equation and get some genuinely independent experts in to do such an important job.

Could such profound changes happen? Well, there are grounds for skepticism, given how hard it has proved for the World Bank to even listen to the independent review. Moore concludes:
"The World Bank responded to these contradictory pressures by trying to play down the Independent Panel’s report. It was launched in London not in Washington, to a hastily convened and very small press conference. The media coverage was slight.

The World Bank President said that he needs time to think about the report. That is quite understandable. It will however be a great pity if the broader political scuffles lead to a quiet burial for this very sensible document."

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