The Hindu Business Line : ‘Improve methodology for ranking ease of paying taxes’

The Chairman of the Prime Minster’s Economic Advisory Council, Dr C. Rangarajan, has taken issue with the World Bank over the methodology used in the latter’s ‘Paying Taxes 2008’ study, which ranked various countries in terms of ease of paying taxes.

India was ranked 168 among 178 countries. The corresponding rank for Pakistan was 146, Sri Lanka 158 and Bangladesh 81.

“We feel there are serious shortcomings in the methodology used by the World Bank study in making these rankings. Besides the judgments made in the choice of the firm, taking the number of tax payments and time spent with tax payments is far too simplistic,” Dr Rangarajan said in his address at the Fifth Asia Tax Forum, jointly organised by the Union Finance Ministry and the National Institute of Public Finance and Policy here on Monday.

The ‘Paying Taxes 2008’ report showed that businesses find significant hardships in paying taxes in South Asian countries in general and India in particular.

Dr Rangarajan said that the rankings generated from the methodology used raises doubts.

“I am not trying to find fault with the rankings, but I want the methodology to improve,” he told Business Line.

The World Bank study had concluded that there was a win-win opportunity for governments and firms if governments simplify tax systems, ease the compliance cost on business and reduce tax rates.

The Paying Taxes study involved gathering information on the tax affairs of a standards case study company in 178 countries, by reviewing the financial statements and a list of transactions of a standard modest-sized firm.

The information was used to generate three indicators related to the number of tax payments, the time taken to comply with its tax affairs, and the tax cost.

These were equally weighted to produce an overall ranking for each country for the ease of paying taxes.

Dr Rangarajan also stressed the need to “re-visit” the tax structure on oil products in the wake of rising international crude oil prices. However, later he clarified that this was stated in the context of “carbon tax” and the environmental aspects.

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