Doing Business Should Stop Promoting Tax Competition
By José Antonio Ocampo and Edmund Fitzgerald — November 23, 2016
NEW YORK – The World Bank Group has just released Doing Business 2017: Equal Opportunity for All, the latest version of its flagship report. According to the Bank, the annual report is one of the world’s most influential policy publications, as it encourages countries to reduce the regulatory burden on the private sector. But there is a serious flaw in the report’s formula: the way it treats corporate taxation.
Doing Business reports rate 11 areas of business regulation in 190 countries, using data on compliance burdens collected by PricewaterhouseCoopers (PwC). The Bank then formulates an overall score that supposedly reflects the ease of conducting commercial activities, and ranks countries according to that score. The lower the regulatory burden on businesses, the higher a country ranks.
The problem is that “regulatory burden,” according to Doing Business, includes the collection of taxes that are necessary to fund public infrastructure and basic social services – both of which are critical to enhance growth and employment. Even the report recognizes that, for most economies, taxes are the main source of the government revenues needed to fund “projects related to health care, education, public transport, and unemployment benefits, among others.”
Beyond promoting budget-straining tax competition among countries, Doing Business exaggerates the tax burden on companies. For one thing, it considers all the kinds of taxes firms might pay – not just corporate income tax.