MSME Taxation in Transition Economies:Country Experience on the Costs and Benefits of Introducing Special Tax Regimes

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Presumptive Tax Regime on Micro, Small and Medium Enterprises in Indonesia

“…A further study by (Engelschalk & Loeprick, 2015) using broader coverage of countries in the European and Central Asian regions has provided more significant results. The adoption of a new tax regime indicates the potential benefits by reducing compliance costs and encouraging higher levels of participation.…”

The Assessment of Taxation on Performance of Micro and Small Enterprise in the Case of Nedjo Town

“…Also, (Tee, Boadi, & Opoku, 2016;Atawodi & Ojeka, 2012) found that tax paid significantly impacts MSE profit. Tax Compliance Cost (TCC): are all tax related costs incurred by taxpayers other than taxes paid to government (IFC, WB, & DFID, 2009) and the burdensome to performance of MSE firm (Engelschalk & Loeprick, 2015). The study by (Mbugua & Moronge, 2016) found that tax compliance costs significantly affect performance of MSE firms.…”

“…Importantly, the MSE business generates a significant share of all taxable business income in most economies (OECD, 2015). As a result, the taxation of MSEs is an issue that was given high importance to economies of every country for the fact that the MSE business taxation is at the core of the relationship between the state and its economic constituents (Engelschalk & Loeprick, 2015;OECD, 2015). However, the performance of the MSE business depends greatly on internal and external factors (Sajilan, Tehseen, & Adeyinka, 2016).…”

Small Business Tax Policy, Informality, and Tax Evasion Evidence from Georgia

“…Turnover tax regimes often tend to be biased towards sectors of small business activity with higher average margins favoring, for instance, small service providers over traders. Discrimination can be avoided by introducing different rates, which, however, tend to increase administrative complexity (Engelschalk and Loeprick 2014). In Georgia, rather than using different rates, differentiation based on documented business expenditures is aimed at offering an option to lower the tax burden for low margin activities (and at providing an incentive to keep records).…”

“…The following paragraphs first explain the simple RDD approach and the assumptions needed for this methodology to be valid and then discuss how our analysis can adjust the design to account for strategic under-reporting around the GEL 100,000 threshold, while leaving the design intact to study the group around the GEL 30,000 threshold where the distribution is smooth. 24 In a number of Eastern European countries, the lack of predictability of MSME tax policy is a major concern for the business community (Engelschalk and Loeprick 2014). …”