The Paying Taxes 2013 report, the eighth annual report published by the World Bank and PwC, says that Israel's tax system is the most complicated in the West. The report ranks Israel in 82nd place for the complexity of its tax system out of 185 economies examined (first place indicates simplicity).
The report says that most countries with more complicated tax systems than Israel are in the Third World. The report says that the average tax paid by a company in Israel is 30.5%, a relatively low rate compared with Western countries, but higher than countries such as Ireland, Luxembourg, Cyprus, Switzerland, and Singapore, that compete against Israel for the resources of multinational companies in setting up R&D centers.
The report says that an Israeli company has to pay an average of 33 different taxes on profits, salaries, and other operations. For the sake of comparison, in the US, a company pays 11 different taxes; in Cyprus, a company pays 28 different taxes; and in Singapore, a public company pays only five different taxes.
235 hours to prepare a tax filing
The annual Paying Taxes report is published by the World Bank, the International Finance Corporation, and the global accounting firm PwC. The eighth annual report examines 185 countries. The tax systems are ranked by creating a case study for all of the tax systems in the world and a review of criteria on the basis of this company for each of the tax systems examined.
The report says that an average public company in Israel devotes 235 hours to prepare its tax filings. The time needed in the US is 175 hours; in Cyprus, 147 hours; in Singapore, 82 hours; in Ireland, 80 hours; in Switzerland, 63 hours; and in Luxembourg, 59 hours.
In Canada a public company devotes 131 hours to prepare its tax filings; in France, a company devotes 132 hours; and in the UK, a company needs 110 hours.
In contrast, in China, a public company devotes 338 hours to preparing its tax filings. The situation in Brazil is even worse: the report says that 2,600 hours are needed to prepare tax filings.
PwC Israel tax partner Doron Sadan says, "Israel's tax system is very complicated compared with tax systems in most Western countries. In addition, there are major differences between the declared tax rates and the effective tax rates that are ultimately paid on profits. Although Israel's companies tax rate is not higher than the OECD average, because of various restrictions, such as how losses are offset, obtaining credit for foreign taxes, and many other restrictions, the effective tax rate paid is higher."
Sadan added, "The complexity of the tax system is even expressed in many basic issues that are not settled in legislation, such as the handling of partnerships, dividends, and capital depreciation. Instead, they are handled by pre-ruling procedures with the Tax Authority, which cause many delays in economic activity.
"On the other hand, in drafted very broadly in order to include all possible situations, in an attempt to close all the loopholes, and tends to focus on marginal cases. The price is paid by companies. When you add all this up, especially the uncertainty that characterizes Israel's tax system, you can see why Israel's tax system is one of the most complicated systems in the West, making it more difficult than before to compete for the hearts of foreign investors."
Published by Globes [online], Israel business news - www.globes-online.com - on December 18, 2012
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