SINGAPORE - Singapore has emerged as a frontrunner in a global study on tax regimes worldwide.
It ranked fifth in a survey of 185 economies as it emerged that companies in Singapore incur a lower tax rate, make less tax payments and thus spend less time complying with tax requirements.
A new report from the World Bank, the International Financial Corporation and PricewaterhouseCoopers (PwC), Paying Taxes 2013, finds that on average, globally, a medium- sized company pays a total tax rate (TTR) of 44.7 per cent of profits, makes 27.2 payments, and spends 267 hours to comply with its tax requirements.
In comparison, findings on Singapore show a significantly lower TTR of 27.6 per cent, with the case study company making five payments and spending 82 hours to comply with tax requirements.
The report states that a low number of hours needed to comply and a highly competitive TTR continue to be the hallmarks of Singapore's stable and simple tax system.
The report also shows that governments continue to reform their tax systems despite the global economic uncertainty, with 31 economies having taken steps from June last year through May 2012 to make it easier and cost less for small and medium businesses to pay taxes.
Released globally yesterday in Singapore for the first time, the report shows that the most common tax reform is the introduction or improvement of online systems for tax compliance, which occurred in 16 economies.
"Electronic filing and payment reduces paperwork and complexity in tax systems and can help increase tax compliance and reduce the cost of tax administration," said Augusto Lopez Claros, director of Global Indicators and Analysis at the World Bank Group.
"The report finds that over the last several years there has been a gradual reduction in the number of payments and in the number of hours spent by a medium-sized company to comply with its tax obligations.
This reduction across all regions of the world in the burden of tax administration is a welcome development."
In Singapore, the report suggests that targeted reforms are used in lieu of broad-based initiatives in view of its maturing economy and could come in the form of Singapore's array of tax incentives to schemes such as the Productivity and Innovation Credit, even though this may increase tax administration burdens for businesses.
One explanation for this may be found in the economic analysis undertaken by PwC senior economic adviser Andrew Sentence featured in the report, which shows that in economies where action was taken to reduce complexity in tax administration - both in terms of the number of payments and the time taken to deal with tax matters - there has tended to be higher economic growth.
"Tax must and will continue to play a key role in Singapore's growth strategy. Reforms must and will continue.
At times, these reforms may come at the cost of increasing the compliance burden of businesses.
Such choices, while at times inevitable, should be weighed carefully," said David Sandison, tax partner at PwC Singapore.
Paying Taxes 2013 measures all mandatory taxes and contributions that a medium-sized firm must pay in a given year.
Taxes and contributions measures include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer tax, dividend tax, capital gains tax, financial transaction tax, waste collection taxes, vehicle and road taxes, and other small taxes or fees.