Trade-offs in the Design of Simplified Tax Regimes
This paper provides novel evidence of the trade-offs policy makers face when designing simplified tax regimes for small businesses. First, it provides a comprehensive stocktaking of the main features of these regimes across Sub-Saharan Africa: they are adopted by two-thirds of countries, but their design varies greatly. Second, it draws on administrative and survey data for a thorough examination of a specific simplified tax regime. This analysis shows most small businesses lack knowledge about design features, such as the existence of a minimum exemption threshold, but they react strongly to increases in tax rates by lowering their declared turnover. Finally, the paper presents the results of an experiment that encourages taxpayers to pay fixed amounts—a potential alternative design of a simplified tax regime that aims for a better balance of the trade-offs facing policy makers. The findings show that providing simple guidance about how much small businesses with similar characteristics typically pay in taxes can increase revenue, but this reduces equity among taxpayers.
| Main Authors: | , , , , , , , |
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| Format: | Working Paper biblioteca |
| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2024-09-19
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| Subjects: | TAXATION, PUBLIC FINANCE, SMALL BUSINESSES, RANDOMIZED EXPERIMENT, MICROECONOMICS, DECENT WORK AND ECONOMIC GROWTH, SDG 8, |
| Online Access: | http://documents.worldbank.org/curated/en/099529509162440365/IDU195bd66a01b249141051ad351d04d4880f6e3 https://hdl.handle.net/10986/42165 |
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| Summary: | This paper provides novel evidence of
the trade-offs policy makers face when designing simplified
tax regimes for small businesses. First, it provides a
comprehensive stocktaking of the main features of these
regimes across Sub-Saharan Africa: they are adopted by
two-thirds of countries, but their design varies greatly.
Second, it draws on administrative and survey data for a
thorough examination of a specific simplified tax regime.
This analysis shows most small businesses lack knowledge
about design features, such as the existence of a minimum
exemption threshold, but they react strongly to increases in
tax rates by lowering their declared turnover. Finally, the
paper presents the results of an experiment that encourages
taxpayers to pay fixed amounts—a potential alternative
design of a simplified tax regime that aims for a better
balance of the trade-offs facing policy makers. The findings
show that providing simple guidance about how much small
businesses with similar characteristics typically pay in
taxes can increase revenue, but this reduces equity among taxpayers. |
|---|