Toward a More Business Friendly Tax Regime

This paper discusses
competitiveness-related issues surrounding the design and
administration of corporate and value added/sales taxes in
four South Asian countries -- Bangladesh, India, Pakistan,
and Sri Lanka. The paper is based largely on analysis of tax
legislation; in addition, data from the World Banks
enterprise surveys, the Doing Business report, as well as
industry studies are used for evidence on tax compliance
costs for business. The review of tax regulations in the
region shows several commonalities: (1) widespread use of
tax incentives to support selected industries, types of
firms, and industrial locations; (2) many exemptions from
value-added taxes as well as the practice of levying
multiple indirect taxes on the same base; and (3) high costs
of tax compliance for businesses. The paper discusses the
consequences of tax policies for the competitiveness of
South Asian producers, describes the main problems in tax
administration, and outlines key directions for reforms.