compliance costs can reach 10% of turnover for small businesses; World Bank studies on developing countries show similar results.<sup>44</sup> Firms in South Asia spend more time complying with tax regulations than in most other regions (Table 9). In all four countries, most of the time is spent to comply with VAT regulations. One reason for that is because VAT returns are filed monthly while corporate taxes are paid less frequently – 1‐5 times per year.<sup>45</sup>

|**Paying Taxes i**|**Table 9.**<br>**n South Asia vs**<br>Paments|**. Other Regions**|
|---|---|---|
|Country|y<br>(number<br>per year)|Time (hours<br>per year)|
|Bangladesh|21|302|
|India|33|243|
|Pakistan|47|594|
|Sri Lanka|47|167|
|_Comparator cou_<br>|_ntries and reg _|_ional averages_|
|Lebanon|19|183|
|Turkey|11|226|
|Poland|18|286|
|Russian<br>Federation|7|168|
|Korea,Rep.|10|187|
|Chile|7|291|
|China|7|261|
|Malaysia|13|133|
|Singapore|5|82|
|Thailand|22|264|
|Vietnam|32|872|
|South Africa|7|200|
|EAP|26|204|
|ECA|21|234|
|LAC|30|366|
|MENA|17|220|
|OECD high<br>income|12|175|
|SSA|38|311|

The administrative burden of tax compliance is hardest in Pakistan where firms have to make 47 payments and spend 594 hours (or 74 man days per year) dealing with tax regulations vs. 12 payments and 175 hours in high income OECD countries.<sup>46</sup> Eighty seven percent of time spent on dealing with taxes (or 514 hours per year) in Pakistan is spent on VAT compliance.<sup>47</sup> As mentioned earlier, the sales tax regulations are frequently amended through SROs, which increases compliance costs. In India, Bangladesh and Sri Lanka, firms spend 105, 140 and 142 hours respectively to comply with VAT.<sup>48</sup> In India, this time also covers compliance with the Central Sales Tax on interstate movement of goods. Every state in India has multiple sales tax check‐points along its national highways and borders to monitor movement of goods through its territory and prevent evasion of taxes.<sup>49</sup> This arrangement increases firms’ tax compliance and logistics costs. The planned introduction of GST in 2016 will eliminate the Central Sales Tax and reduce firms’ tax compliance costs.

In Bangladesh, paying VAT often entails direct negotiation with the OECD high income 12 175 tax officials. The current VAT law gives them significant SSA 38 311 discretionary powers to fix for each tax period the minimum Source: World Bank. Doing Business 2015 amount of sale, amount of value addition and base value for payable tax for the suppliers of goods and services in cases where tax officials consider that the books of accounts do not show correct sale values, receipts or invoices are not available or tax returns are believed to contain false information.<sup>50</sup> In such instances, tax officials have the authority to assess VAT liability

> 44 Tax compliance costs for small business were estimated at 16% of turnover in Uzbekistan (IFC 2010), 8% in Ukraine

> (WB.2010) and 5% in South Africa (WB. 2007).

> 45 World Bank. Doing Business 2015

> 46 The indicators of number of payments and hours spent complying with tax regulations cover a number of different taxes and levies, including corporate income tax, VAT/Sales tax, social security contributions, employer paid – pension contributions, property tax, education cess, vehicle and fuel taxes. For more information on methodology, see Doing Business 2015 Report.

> 47 World Bank. Doing Business 2015

> 48 World Bank. Doing Business 2015

> 49 Ernst and Young. Retailers Association of India. 2013. “Movement of Goods in India”

> 50 Salehen, Ahmed. 2013. The Use of Discretions in Taxation: the Case of VAT in Bangladesh. E‐Journal of Tax Research (2013), vol. 11, no. 1, pp 97‐111

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