Lowtax Network

Back To Top

everyone is allowed an off-day now and again

Kitty Miv, Editor
11 April, 2017

Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

Just as every individual is unique (unless they've gone and perfected human cloning while I wasn't looking), each country on earth is also an entity in its own right, with its particular personality, cultural quirks, and behavioral nuances.

However, many key emerging economies share at least one characteristic in common. Many seem to be on the cusp of economic greatness, of finally joining the elite group of advanced economies. But the same countries are being held back from making that final jump.

There are various reasons – political, social, historical, etc. – why this may be the case. And there's no room here to discuss them all. But another thing I've noticed about this tier of economies is that they generally have terrible tax regimes.

Take Mexico for example. It has a huge foreign market on its doorstep in the form of the United States and can trade more or less freely with both the US and Canada. Its economy is now worth over USD1 trillion in absolute terms, and by all accounts incumbent President Enrique Nieto has done a reasonable job in advancing promised economic reforms. Yet, one gets the feeling that the economy should have progressed much further than it has by now.

Certainly, when it comes to taxation, there is considerable progress to be made. And while taxes might not be particularly high, they are definitely highly complex – another trait shared by notable emerging economies.

Recent tax reforms may well have boosted revenues, according to a recent report by the World Trade Organization, but they probably haven't boosted business confidence in the tax system. Mexico languishes in 114th place in PwC's Paying Taxes Index, and the accompanying report highlights the reams of documentation that taxpayers must file in support of their VAT returns and refund claims in particular. And the Government it seems has no immediate plans to tackle the problem, having ruled out tax reform just last month.

In fact, I can attest to the complexity of certain aspects of Mexico's tax regime myself. If you ever have trouble getting to sleep at night, or on a long-haul flight perhaps, just try reading – and comprehending if possible – Mexico's special Maquiladora tax regime. I wager you'll be sleeping like a log in no time.

Now, I'm all for initiatives that make tax compliance and administration simpler. And perhaps Mexico could take a leaf out of Brazil's book and improve its tax compliance rating by putting in place more electronic filing processes. By doing this, Brazil managed to reduce the time it takes the average company to discharge its tax obligations by more than 500 hours last year, as these new systems began to bed in. That's almost 21 entire days – 21 days in which the company can now focus on its actual business, rather than the business of paying taxes.

Nevertheless, it still takes the average company over 2,000 hours to comply with Brazil's dense spaghetti bowl of taxes. That's over 83 complete days of filling in and filing tax returns and other declarations, and making payments. And the Government is still apt to complicate matters with targeted and temporary tax measures. Indeed, it's surprising this company makes any profit for the Government to tax in the first place! But it's a step in the right direction.

However, government "e-tax" initiatives aren't always the panacea they are made out to be. They are fine of course when they actually lead to reductions in the time it takes to file forms and pay taxes, and result in fewer or shorter interactions between taxpayers and tax authorities – in other words, make life easier for everyone involved. Such schemes are not very useful if digitization of the taxation process has the opposite effect, though.

But surely a government wouldn't be so silly as to use information technology to increase the workload on taxpayers? Given the litany of botched public sector IT projects across the world, it would be foolhardy to underestimate governments' ability to get these things wrong! And the UK Government might be about to commit another botch job if it doesn't heed the warnings of tax practitioners and members of parliament not to rush into place the "Making Tax Digital" (MTD) project, which the Government launched the pilot of earlier this month.

The aim of MTD is to help small businesses and the self-employed to keep better track of their tax affairs. But in order to do so, taxpayers would have to update their new digital accounts at least quarterly, instead of annually as is usually the case with self-employment taxes at present. So, on the face of it, MTD will increase the number of interactions between taxpayers and the tax man, and could lead to them spending more time on compliance, not to mention more time worrying about compliance.

Recently, the House of Commons Treasury Committee said that if designed and implemented correctly, MTD could greatly improve tax administration. Tax records would presumably be more timely and accurate, and the required information more easily obtained. But, on the other hand, if rushed into place, the committee warned the Government that MTD could be a "disaster," increasing costs and administrative burdens, and forcing more small firms into the shadow economy.

Making Tax Digital? Making tax difficult, more like!

It seems to be an in-born trait of the governing class that they possess selective hearing. Sometimes, it feels like they just never listen. But perhaps on certain occasions, for political expediency, they are choosing not to hear.

I've written before about how the evidence in support of tax amnesties is far from convincing. Most academics who have recently studied this subject have concluded that, ultimately, tax amnesties are self-defeating, largely because they erode tax compliance over the long-term, rather than encourage it. And, right on cue, Indonesia – a serial amnesty user – has just reinforced the point by reporting an underwhelming response to its latest tax amnesty. Little wonder then that tax compliance levels in Indonesia remain at historically low levels, and attempts to widen the tax base are proving largely fruitless. It's a shame therefore that Jersey has gone and blotted its copy book by announcing a tax amnesty of its own, just days after Indonesia reported its latest flop.

Offshore is not the most popular place around the world right now. But that doesn't detract from the fact that Jersey, with its lack of party politics, seems generally a soundly governed place, and has a largely unblemished record in this column. However, it may not have done itself many favors with this decision. Still, I suppose everyone is allowed an off-day now and again.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums

Brazil simplifies

Kitty's Execrations

Mexico falls short

Jersey aberrates

United Kingdom hasty



About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


« Go Back to Blogs

Blog Archive

Event Listings

Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...
See Event Listings »