Paying Taxes is Getting Easier in the Kyrgyz Republic but More Reform Is Needed

Brussels, November 19, 2007— The Kyrgyz Republic was among reformers which made it easier to pay taxes in 2006/2007; however, the country still ranks 152nd in the world in terms of ease of paying taxes, says a new report launched today by the World Bank, IFC, and PricewaterhouseCoopers.  The top-ranked country in Central Asia is Kazakhstan (44), while Tajikistan (155) and Uzbekistan (159) rank lower in the region.  Russia sits below the middle of the range, with a ranking of 130, and China is number 168 in the global ease of paying taxes ranking. 

Paying Taxes 2008, the second report in an annual series on tax systems, covers 178 countries worldwide. The study allows direct comparison of tax systems from around the world. It shows how businesses are affected not only by tax rates, but also by the procedural burden of compliance. The report focuses on the number of tax payments made, the time it takes to comply, and the cost of taxes, which is measured by the total tax rate. The total tax rate covers five types of taxes that firms pay: profit, social, property, turnover, and other taxes, such as municipal fees and fuel taxes. The steps, time, and cost indicators are used to determine the overall ease of paying taxes. The report concludes that there is a win-win opportunity for governments and firms if governments simplify tax systems, ease the compliance cost on business, and reduce tax rates.

This year, 31 economies, including the Kyrgyzstan, improved their business tax systems.  Bulgaria was the top reformer, and Turkey was runner-up.  The Kyrgyz Republic undertook a major cut in corporate income tax from 20 to 10 percent and decreased labor taxes and contributions by three percentage points.  

While reducing corporate income tax was the most popular reform, many countries have reduced the compliance burden by simplifying or eliminating other business taxes.  “Reducing the tax burden was the second most popular reform of the business regulatory environment this year. Despite previous reluctance to reduce tax burdens for fear of cutting government revenues, some governments that have implemented tax reform have reaped the benefit of higher investment and economic growth,” said Rita Ramalho, coauthor of the report and tax specialist, World Bank.  “Economies with a lower business tax burden also have more new firms entering the market.”

Complying with administrative tax requirements remains a real burden for business. Globally, on average, a company spends almost two months a year complying with tax regulations—15 days for corporate income taxes, 21 for labor taxes and contributions, and 21 for consumption taxes. However, there are wide variations between countries. For example, it takes 9 days to comply with consumption taxes in Kyrgyzstan, but only one day in Switzerland.  Compliance issues can significantly affect the overall ranking, either counteracting the benefit of a low tax rate or mitigating the impact of high tax rates. Scandinavian countries, while known for high taxes, do well on the ease of paying taxes because of a low compliance burden. 

Kyrgyzstan ranks 70th in the world in terms of time it takes to comply with tax regulations.  Also, with 75 tax payments that a company has to make, the Kyrgyz Republic is among bottom 10 countries in the world.  To compare, the number of tax payments per year is 9 in Kazakhstan, 22 in Russia, 35 in China, and 54 in Tajikistan.

“Last month President of the Kyrgyz Republic Kurmanbek Bakiev has said that the new edition of the Tax Code of the country should be prepared by the end of this year” – noted World Bank Country Manager in the Kyrgyz Republic Roger J. Robinson.  Robinson expressed hope that the Paying Taxes 2008 report will help in finalizing the new Tax Code of the Kyrgyz Republic. 

The report calls on businesses to play a strategic part in reform. Susan Symons, coauthor of Paying Taxes 2008 and tax partner at PricewaterhouseCoopers LLP, said, “Businesses need to be more upfront in revealing their total tax contributions, to help governments assess their real economic footprint. More and better information about the taxes paid and the cost of compliance is essential to understanding how tax systems affect businesses. It is clear that governments need to look across all taxes when considering reform”.  

This year the top 10 economies for ease of paying taxes are, in order, Maldives, Singapore, Hong Kong (China), United Arab Emirates, Oman, Ireland, Saudi Arabia, Kuwait, New Zealand, and Kiribati.

The 10 economies where it is most difficult are, from 169 to 178, Panama, Jamaica, Mauritania, Bolivia, the Gambia, Venezuela, the Central African Republic, the Republic of Congo, Ukraine, and Belarus.

For more information or a copy of the report, please visit: www.doingbusiness.org/taxes