By Maximilian Clarke

As other nations cut and simplify their taxes, the UK’s currently competitive tax system risks being overtaken, posing a significant threat to the UK economy.

The latest Paying Taxes report carried out by global professional services firm, PwC, in conjunction with the International Finance Corporation and the World Bank, assesses tax regimes by measuring total tax costs, number of payments and time to comply for a case-study flowerpot firm.

While the UK’s results on these measures have not changed since last year, tax reforms in 33 of the countries surveyed are putting pressure on Britain’s relatively good place in the ranking.

“There’s no denying from these results that the UK has a competitive tax system, with some major economies trailing behind,” Mary Monfries, tax partner at PwC. “When you see time spent on compliance in the UK is almost half the EU average of 208 hours you realise how much more difficult things could be. But the trouble is we need to be right at the top to attract maximum inward investment. Other countries have specific resources or markets that bring in businesses; for us the financial and business environment is the key attraction. Our tax regime needs to stand out from the crowd when it’s an important factor for businesses choosing where to locate. Costs to comply, complexity and uncertainty are all significant factors in that choice.

“Particularly given the shift of capital from west to east, we can’t afford to have the likes of Hong Kong and Singapore in third and fourth position with us moving towards twentieth. Even when looking at European hubs, Luxembourg and Ireland come out ahead.”

Countries that do well in the league table tend to be high-income economies with more mature tax systems. Practices which have helped improve results globally include reductions in corporate income tax rates, with 133 significant reductions over the last five years. Having one tax base, which is now the case in 49 economies, has also made a difference, as has self assessment, and electronic filing and payment systems, which are used in 79% and 66% of tax regimes respectively.

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