Creating

48 DOING BUSINESS IN 2006
TABLE 8.1
Most 2004 tax reforms in Eastern Europe—
and to corporate income tax rates
All reforms Reforms including cuts in
Region (number) corporate income tax rate (%)
Eastern Europe 12 Albania 25 to 23
& Central Asia Bulgaria 19.5 to 15
Czech Republic 28 to 26
Estonia 26 to 24
Latvia 19 to 15
Moldova 20 to 18
Poland 27 to 19
Uzbekistan 18 to 15
OECD high income 6 Austria 34 to 25
Denmark 30 to 28
Finland 29 to 26
Greece 35 to 32
Netherlands 34.5 to 31.5
Sub-Saharan Africa 3 Ghana 32.5 to 28
Senegal 35 to 33
Latin America & Caribbean 2 Mexico 33 to 30
South Asia 1 Afghanistan 25 to 20
East Asia & Pacifi c 0
Middle East & North Africa 0
Source: Doing Business database.
Other countries focused on reforming tax administration.
Spain introduced rules streamlining audits and
appeals and increasing penalties. Lithuania did the same,
and provided for electronic filing. Tax administrators
there must now prove the basis for any tax recalculation.
Businesses in Africa face the highest taxes (see figure
8.4). In 2004, 3 countries in the region—Ghana, Tanzania
and Senegal—revamped their tax codes and eased
tax burdens. Ghana cut corporate tax rates and launched
a unit to ease tax administration for large businesses. But
it raised the VAT by 2.5 percentage points.
Three-quarters of businesses in Tanzania complain
that taxes and their administration are a severe obstacle. 6
But things have gotten easier. A new income tax law
broadened the tax base, closing loopholes and introducing
taxpayer self-assessments. Improvements were also
made in Senegal. Small businesses can now pay 1 tax
that has a lower rate and consolidates 4 previous taxes.
In addition, several exemptions were abolished to widen
the tax base. And the company income tax rate fell from
35% to 33%. Mauritania took the opposite path, raising
corporate taxes from 20% to 25%—making it the only
country to increase this tax in 2004–05.
In Latin America, Mexico reduced its corporate
income tax—from 33% to 30%—and announced further
cuts for the next 2 years. El Salvador reformed its
VAT and income tax laws as well as the tax code, with
an aim to increase the tax base. It also levied a 1%
monthly VAT advance. Tax rates rose in the Dominican
Republic, with the VAT hiked from 12% to 16%. Several
other countries in the region introduced minor reforms.
Honduras modified penalties in an effort to improve
compliance—easing sanctions for late payments and
making tax evasion a criminal rather than civil offense.
Argentina extended its financial transactions tax, and
Bolivia introduced one.
Aid accounts for more than half of government revenue
in Afghanistan. But with a new tax law, this may begin
to change. Taxpayer identification numbers were issued
in preparation for the law, and the corporate income tax
was cut from 25% to 20%. Elsewhere in South Asia, Nepal
raised its VAT from 10% to 13%, while India and Pakistan
continued implementing reforms launched before 2004.
The regions with the lowest tax rates—East Asia
and the Pacific and the Middle East and North Africa—
reformed the least in 2004. Samoa increased its VAT from
10% to 12.5%. Saudi Arabia reformed its corporate tax
law, but that change affects only foreign firms. Like many
of its neighbors, the government relies on oil revenue to
fund spending. As a result businesses in the region pay
some of the lowest tax rates in the world. Morocco introduced
some administrative reforms, with a new finance
law imposing a 10% penalty on late payments.