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MSME taxation in transition economies : country experience on the costs and benefits of introducing special tax regimes

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  • Engelschalk,Michael
  • Loeprick,Jan

Abstract

The paper analyzes the design of simplified small business tax regimes in Eastern Europe and Central Asia and the impact of such regimes on small business tax compliance. Although many approaches for tax simplification exist, a general trend in the region is to offer small businesses the option to be taxed based on their turnover instead of net income. The study finds that many of the regimes in place are overly simplistic and neither take into account fairness considerations nor do they facilitate business growth and migration into the standard tax regime. Although revenue generation is not a main objective of such regimes, low revenue performance and the risk of system abuse by larger businesses should be issues of concern. More attention should therefore be devoted to improving the design of simplified regimes and monitoring their application. This will require in particular a more profound analysis of the economic situation and the tax compliance challenges in the small business segment and increased efforts to improve the quality of bookkeeping.

Suggested Citation

  • Engelschalk,Michael & Loeprick,Jan, 2015. "MSME taxation in transition economies : country experience on the costs and benefits of introducing special tax regimes," Policy Research Working Paper Series 7449, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7449
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    File URL: http://documents.worldbank.org/curated/en/399741468197376971/pdf/WPS7449-REVISED-MSME-taxation-in-transition-economies.pdf
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    References listed on IDEAS

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    1. Jaime Vázquez-Caro & Richard M. Bird, 2011. "Benchmarking Tax Administrations in Developing Countries: A Systemic Approach," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1104, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Alexeev, Michael & Weber, Shlomo (ed.), 2013. "The Oxford Handbook of the Russian Economy," OUP Catalogue, Oxford University Press, number 9780199759927.
    3. Xiao Mei Li & Linda Yueh, 2011. "Does Incorporation Improve Firm Performance?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73, pages 753-770, December.
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    Cited by:

    1. Amodio, Francesco & Choi, Jieun & De Giorgi, Giacomo & Rahman, Aminur, 2022. "Bribes vs. taxes: Market structure and incentives," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 435-453.
    2. Era Dabla-Norris & Florian Misch & Duncan Cleary & Munawer Khwaja, 2020. "The quality of tax administration and firm performance: evidence from developing countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 514-551, June.
    3. Feng Wei & Jean-François Wen, 2019. "The Optimal Turnover Threshold and Tax Rate for SMEs," IMF Working Papers 2019/098, International Monetary Fund.
    4. Bruhn, Miriam & Loeprick, Jan, 2014. "Small business tax policy, informality, and tax evasion -- evidence from Georgia," Policy Research Working Paper Series 7010, The World Bank.
    5. Gohar S. Sedrakyan, 2017. "The Effects of Presumptive Methods of Taxation on Revenue Mobilization in the Value Added Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1718, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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    More about this item

    Keywords

    Public Finance Decentralization and Poverty Reduction; Taxation&Subsidies; Tax Law; Public Sector Economics; Macro-Fiscal Policy; Tax Administration; Economic Adjustment and Lending; Tax Policy;
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