The World Bank’s Ease of Doing Business report provides a good basis for countries to develop good practices so as to assist businesses and thereby contribute to the overall growth of the economy. Those in charge of governance need to take cognizance of these indicators to improve the ease of doing business in Sri Lanka.
On the topic of Paying Taxes, Doing Business measures all taxes and contributions that goes beyond the traditional definition of a tax. It includes the corporate income tax, social contributions and labor taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and any other small taxes or fees.
The aspects measured include the number of payments of taxes, time taken to prepare for such payments and the base used for payment of taxes. The combination of the number of tax payments per year (47) and the time spent for tax compliance (167 hours) has driven Sri Lanka’s rank to 158. Though Sri Lankan indicators looked acceptable on a comparative analysis, there were 2 key practices that are missing. These are especially considered good practices by the world bank analysts due to convenience, transparency and saving of time. They are:
– Offering electronic filing of tax returns and payment
– Keeping it simple: one tax base, one tax
Installing an electronic system for filing and paying taxes and educating the public requires tremendous effort in getting the infrastructure and the software in place. The biggest benefit could be the reduction of corruption and widening of the tax net. If such a system is implemented well and used by most taxpayers, it benefits both tax authorities and companies. For tax authorities, electronic filing lightens the workload, reduces operational costs and saves time. At the same time, the level of transparency may increase tax compliance. For taxpayers, electronic filing saves time by making it easier to prepare, file and pay taxes.
Multiple taxation—where the same tax base is subject to more than one tax treatment, complicates tax administration and is troublesome for taxpayers. Multiple taxation increases the cost of doing business for firms because it increases the number of payments they must make and the compliance time as well. Different forms have to be filled out, often requiring different methods for calculating the tax. Such complication affects investor confidence. Therefore, simplifying the tax administration should be a priority for improving business confidence in the country,
Another good practice highlighted is -Adopting self-assessment as an effective tool for tax collection, which is implemented in Sri Lanka. However, this process is manual and does not function in a convenient manner. Therefore, the benefits to businesses like the reduced opportunities for corruption, automated reporting process and saving of time do not accrue. The tax authorities should invest in an automated self assessment system to ensure the benefits will improve the ease of doing business and reduce the likelihood of disputes over tax assessments.