- March 3, 2014
Awara Releases Global Tax Survey on Total Payroll Taxes 2014
- Russia has the lowest taxes on payroll (labor) among major economies of the world
- Survey exposes flaws in World Bank’s study Paying Taxes 2014
Related Press Releases:
- Awara to publish a book on Taxation in Russia – Awara Russian Tax Guide
- Press Release – Awara Research on the Effects of Putin’s Tax Reforms 2000 –2012 on State Tax Revenue and GDP
Awara’s global survey on payroll taxes shows that employees receive net in hand salaries that are only a fraction of what the employer must shell out on payroll. On average, taking an income level of 60 thousand euro p.a., the employer must pay 1.8 times the amount that is actually received by the employee. In the countries with the most punitive labor taxes, the employee’s take-home pay is only 40-43 percent of what the employer pays (Belgium, France and Italy). The survey found that of the world’s major economies, labor taxes are the lowest in Russia.
In connection with the publication of Awara Russian Tax Guide 2014, Awara has undertaken a global survey on total payroll taxes. In various countries the survey measured the relation between net take-home pay (net salary after taxes) and the total cost that the employer must bear, considering gross salary and all payroll taxes. The survey shows how much the employer has to pay in order for the employee to receive a certain net salary after all statutory deductions. This is expressed as the Gross Labor Cost Multiplicator, the factor by which net pay is multiplied to yield the total cost to employers. Conversely, the same is expressed as the Net Take-Home Percentage, the percentage of the gross labor cost that the employee enjoys after tax. This shows the actual tax burden on labor in various countries.
CLICK HERE for full Awara Global Survey on Total Payroll Taxes 2014
We measured the tax burden on four different levels of gross salary: 1,000 euro per month (12,000 p.a.); 2,000 euro per month (24,000 p.a.); 5 thousand euro per month (60,000 p.a.); and 10,000 per month (120,000 p.a.). Due to several exemptions for the lower levels of income and tax limits at the higher end, we consider that income levels of 2 thousand and 5 thousand per month offer the best comparisons.
The study found that on an annual salary of 24,000 euros, the Gross Labor Cost Multiplicator in Russia is 1.39. This means that at this salary level, the employer’s total payroll cost is 1.39 times the net take-home income of the employee, or expressed from another point of view, the employee receives in hand 72 percent of all the money that the employer must pay for the employment. On an annual salary of 60,000 euros, the Gross Labor Cost Multiplicator in Russia is 1.32, whereas the employee receives in hand 76 percent of that money. Of the larger developed nations, only the USA (Illinois) placed before Russia in the survey of salary levels of 24,000 euro per year with a multiplicator of 1.38. At the same time most European Union countries showed multiplicators from 1.5 to 2. At a salary level of 60,000 euro per year, the picture was even more favorable for Russia. Due to an increasing tax burden on higher salary levels, so-called tax progression, the US multiplicator for salary levels of 60,000 euro deteriorated to 1.52, while in the European Union countries (excluding some of the smaller ones with specific economic conditions) these now ranged from the UK’s 1.75 to Belgium’s 2.51. This means that in Russia an employee would receive a net salary of 4,350 euro from a gross salary of 5,000 euro per month and the total monthly cost for an employer would be 5,720 euro, whereas an employee in Belgium would be left with 2,670 euro from a salary of 5,000 euro, and the total payroll cost for the employer would be 6,700 euro.
The net take-home salary may be further adjusted for the purchasing power parity (PPP). That is to the real value of the salary in the respective home country. These PPP adjusted calculations yield the best results for Russia. In Russia, PPP on 5,000 euro net earnings would cost the employer only 4013 euro, whereas a PPP on a 5,000 salary would cost the employer 14,056 in Sweden and, for example, 11,426 in Finland.
Comparing the Results wih World Bank’s Paying Taxes Study
The failure to understand the above principles of total labor taxes is particularly evident in respect of the global comparison of tax systems called Paying Taxes 2014 by the World Bank, IFC and PWC. The study forms part of a bigger project known as the World Bank’s Ease of Doing Business Index. This bigger survey measures regulations affecting 11 areas of business activity, among them regulations concerning taxation completed in the context of the Paying Taxes survey. The tax survey attempts to measure both the compliance burden on tax administration (number of tax filings and the time it takes to perform them) and the cost of all taxes borne (the total tax rate). Unfortunately, the methodology of the survey in respect to the total tax rate, and in particular concerning the total payroll taxes, is grossly inadequate as it only considers the taxes directly borne by the employer company (employer’s social security contributions), and totally ignores the payroll taxes charged from the employee (personal income tax and employee’s social contributions). As a result the survey portrays a very skewed picture of the total tax burden. A case in point is Russia (as we have seen the country has some of the lowest payroll taxes in the world), which has been awarded a dismal ranking in the indicator of total tax rate. Russia is, in the methodology of World Bank, placed 178th out of 189 countries on this parameter. According to these misguided criteria, taxes in Russia are supposed to take 50.7 of the profit placing Russia 56th in the rating.
You can access the full Awara Global Survey on Total Payroll Taxes here.
In connection with publishing the Awara Russian Tax Guide, Awara issues its research findings on the astonishing tax revenue and GDP figures of the Russian economic miracle, ushered in by the tax reforms under President Putin over the last 13 years. Read more on this in the press release on Awara’s reasearch on the effects of Putin’s tax reforms 2000 – 2012 on state tax revenue and GDP.
Awara is pleased to announce the forthcoming publication of the Awara Russian Tax Guide by leading Russian tax lawyers Jon Hellevig, Anton Kabakov and Artem Usov. The book is expected to be released February, 2014.
The Awara Russian Tax Guide is one of a kind, being the only English language book that covers all the main provisions of Russian tax law. This book guides the investor and other interested readers, giving them a thorough understanding of the Russian taxation system as it pertains today.
The introduction to the book presents the astonishing tax revenue and GDP figures of the Russian economic miracle, ushered in by the tax reforms under President Putin over the last 13 years. Click here for the press release on the publishing of Awara Russian Tax Guide.
HOW TO BUY AWARA RUSSIAN TAX GUIDE:
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The book can also be ordered on Ruslania website (that is one of the largest whole sellers and distributors of Russian books and periodicals). Click here to buy the E-book or here to buy the printed version.
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