Simplified tax regimes for micro and small enterprises in developing countries are intended to facilitate voluntary tax compliance. However, survey evidence suggests that small business taxation based on simplified bookkeeping or turnover is sometimes perceived as too complex for microenterprises in countries with high illiteracy levels.
... See More + Very simple fixed tax regimes not requiring any books or records tend to be overly popular but prone to abuse. System reforms will require more precise tailoring of the simplified regimes to their target beneficiaries, coupled with strong compliance management to detect and deter abuse. The overall objective of simplified taxation for micro and small enterprises (MSEs) in developing countries is generally to facilitate voluntary tax compliance and remove obstacles in moving toward business formalization and growth.
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This study attempts to estimate tax compliance costs and assess views of taxpayers on aspects of the tax system in Ethiopia. The study uses evidence mainly from a survey of both formal and informal businesses in Addis Ababa and four major cities (Adama, Hawassa, Mekele, and Bahir Dar) in the four largest regional states.
... See More + The survey covered 1003 formal businesses and 499 informal businesses. Survey questionnaires were informed by the results of four focus group discussions conducted in Addis Ababa and Adama. The findings of the study are expected to offer tax policy makers and tax administrators an opportunity to pinpoint specific problems to help reduce the cost of complying with tax policies and procedures, thus improving the revenue performance and also the efficiency and business-friendliness of the tax system. The report is organized in four sections. The first part presents an overview of the Ethiopian tax system and recent reform initiatives; second section discusses the research objectives and the methods employed. Section three presents results of the survey while section four presents conclusions and recommendations.
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As the use of e-fi ling of tax returns has spread from developed to developing countries, it has been clear that this sort of reform can reduce errors and opportunities for corruption.
... See More + Also, it has been widely assumed that taxpayer compliance costs would decrease with the use of e-fi ling, because less time is spent getting tax returns from the taxpayer to the revenue authority. This note summarizes findings from tax compliance cost surveys and offers a cautiously positive assessment of e-fi ling reforms in developing countries with a number of caveats. Countries should not rush to push e-fi ling on all taxpayers until the revenue authorities, infrastructure, and taxpayers are ready.
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The World Bank Group conducted a study, using data from a number of surveys of businesses in developing countries, to investigate the association between the use of specialized tax software and total tax compliance costs.
... See More + Most empirical data from both developed and developing countries show that use of tax software is associated with higher tax compliance costs. However, since larger and more sophisticated businesses are likely to both have higher tax compliance costs and use tax software, it is necessary to control for these and other firm characteristics. Regression analysis shows that it is indeed possible for tax software to reduce tax compliance costs, holding other variables constant, but the results are weak and often mixed. Overall, the studys estimates show that tax software usage is associated with a reduction in compliance costs in certain specific cases. Yet, the estimates are usually not robust enough to control for different sub-groups of firms. This suggests that a reduction may be expected for certain types of firms, but probably not for all.
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The purpose of this study is to investigate the association between electronic filing (e-filing) and the total tax compliance costs incurred by small and medium size businesses in developing countries, based on survey data from South Africa, Ukraine, and Nepal.
... See More + A priori, most observers expect that use of e-filing should reduce tax compliance costs, but this analysis suggests that the assumption should be more nuanced. In particular, policies that require business taxpayers to submit paper-based information in addition to their e-filing roughly negate savings that would otherwise be realized. In addition, adoption of e-filing requires an up-front investment by the business not only in capital assets, but also in the time, effort, and resources required to learn how to use e-filing properly and efficiently. Small businesses, in particular, are likely to face a steep "learning curve" and should probably not be forced to use e-filing before the majority of them have access to computers (with reliable electricity service) and have had a chance to become familiar with both computer use and the Internet.
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Policy Research Working Paper WPS6647 OCT 01, 2013
The report represents the main results of IFC's 2010 survey of private sector companies and individual entrepreneurs in Armenia. Its findings evaluate the cost of compliance with tax legislation and supervisory bodies to fulfill tax liabilities by legal entities (companies) and individual entrepreneurs in 2009.
... See More + The survey report examines the cost of tax compliance in terms of time and money. The number of man hours spent working on tax compliance can also be expressed in terms of money, as the cost to businesses includes staff wages as well as any lost productivity. Thus, from the business' perspective, the time required to comply with tax regulation is an additional cost associated with paying taxes. The study shows that tax compliance in Armenia is a burden on private businesses, especially for small companies and individual entrepreneurs, which spend an additional 10 percent of income on tax administration. Despite the fact that most survey respondents reported that the quantity of taxes is the main concern for Armenian businesses (39), other characteristics of the tax system - such as tax inspections, corruption associated with paying taxes, tax accounting procedures, tax reports and frequency of filing - are also worrisome for a lot of taxpayers. Therefore, the survey focused on assessment costs of tax compliance and particularly on those that are the costliest and problematic for Armenian business, such as maintaining book of registration of revenues, tax inspections and book of shipment of inventory holdings.
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The report represents the main results of IFC's 2010 survey of private sector companies and individual entrepreneurs in Armenia. Its findings evaluate the cost of compliance with tax legislation and supervisory bodies to fulfill tax liabilities by legal entities (companies) and individual entrepreneurs in 2009.
... See More + The survey report examines the cost of tax compliance in terms of time and money. The number of man hours spent working on tax compliance can also be expressed in terms of money, as the cost to businesses includes staff wages as well as any lost productivity. Thus, from the business' perspective, the time required to comply with tax regulation is an additional cost associated with paying taxes. The study shows that tax compliance in Armenia is a burden on private businesses, especially for small companies and individual entrepreneurs, which spend an additional 10 percent of income on tax administration. Despite the fact that most survey respondents reported that the quantity of taxes is the main concern for Armenian businesses (39), other characteristics of the tax system - such as tax inspections, corruption associated with paying taxes, tax accounting procedures, tax reports and frequency of filing - are also worrisome for a lot of taxpayers. Therefore, the survey focused on assessment costs of tax compliance and particularly on those that are the costliest and problematic for Armenian business, such as maintaining book of registration of revenues, tax inspections and book of shipment of inventory holdings.
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Businesses especially small ones often face heavy costs in the process of preparing, filing, and paying taxes in addition to the burden of tax payments.
... See More + These compliance costs, added to fines, penalties, and the risks of onerous inspections and demands for bribes, often deter business creation and growth in developing and transition countries. A tax compliance cost survey can provide useful information for the design of reforms to reduce compliance costs and risks for small businesses. This note highlights key findings of tax compliance cost surveys conducted in South Africa, the Republic of Yemen, Ukraine, and Peru that measured the burdens on business. These surveys helped fine-tune the design of reforms to lower costs for businesses and improve their competitiveness.
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This paper is based on large-scale surveys of formal and informal small businesses in South Africa, including questions about their experiences and perceptions about tax compliance, tax morale, and related variables.
... See More + The survey findings suggest that formalization is more likely to take place in urban areas, involving relatively larger firms, and those who already use proper bookkeeping. Informal firms who said they were likely to register for tax in the near future were more likely than other informal firms to report higher satisfaction with government services, and to believe most businesses pay their taxes. The most-cited advantages of being registered for tax included better access to government services, better access to financing, and better opportunities for growth.
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Policy Research Working Paper WPS4992 JUL 01, 2009
The authors use firm-level survey data on 998 small and medium enterprises registered for tax in South Africa regarding tax compliance costs to investigate the use of outsourcing to complete tax compliance tasks.
... See More + Overall, about 43 percent of the enterprises do all their tax compliance work in-house, 11 percent outsource all their tax compliance work, and the remaining 46 percent use a combination of both ("partial outsourcing"). The data display an inverted-U shape for outsourcing of tax compliance tasks: the smallest firms (those under R 300,000 turnover or well under US$50,000) tend not to outsource, due to a combination of relatively higher cost-burden and less complexity. Relatively larger firms (those with more than R 14 million turnover or about US$2 million) report that they have sufficient in-house capacity and therefore do not need to outsource. Those in the middle are most likely to outsource at least some of their tax compliance work, mostly because tax is a specialist field and they presumably lack sufficient capacity in-house. The survey data show that the costs of tax compliance are clearly the highest for those who engage in partial outsourcing, as it appears there is likely duplication of effort. Most such firms could reduce their tax compliance costs (and probably minimize the incidence of post-filing problems) by moving from partial to full outsourcing of all tax compliance work.
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Policy Research Working Paper WPS4873 MAR 01, 2009
At the request of the National Treasury and the South African Revenue Service (SARS), the Foreign Investment Advisory Service (FIAS, a multi-donor facility of the World Bank Group) provided assistance with a set of surveys of tax compliance costs for small and medium enterprises.
... See More + This paper is based on the results of the first of these surveys a web-based survey of tax practitioners and focuses on the differences between the nine provinces in South Africa. While there was comparatively little variation in the tax practitioner survey by turnover band (confirming the regressive nature of tax compliance costs in South Africa), there appears to be a lot of provincial variation not only in 'costs' (where the more urbanized provinces tended, as expected, to be more expensive than other provinces), but also considerably in time indicators. It appears that some SARS provincial offices are more efficient than others, and this varies by tax and by procedure. The rural provinces were often rate relatively well with regard to communications with tax practitioners (perhaps because they have a less onerous case-load), while on the other hand, tax practitioners report a higher frequency of SARS errors in the rural provinces. There may be considerable scope for identifying 'best practice' among provinces for various tax services and attempting to analyze and disseminate the key features of their good performance. Further, the lessons of South Africa may be useful for many other developing countries that are interested in mitigating tax compliance costs for small and medium enterprises (SMEs).
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Working Paper (Numbered Series) 51708 DEC 01, 2008
In many developing countries (both poor and middle-income), business owners complain that tax compliance costs (i.e. cost of preparing, handling, and submitting required tax forms to the country's tax authorities and related interactions with tax authorities) add a serious burden to their operations and significantly affect bottom lines.
... See More + In South Africa these complaints are compounded by anecdotal evidences that tax compliance costs also prevent a lot of small businesses from registering and joining the 'formal' economy. The national treasury and the South African Revenue Service (SARS) therefore requested that the Foreign Investment Advisory Service (FIAS), a multi-donor facility of the World Bank Group assist them with a set of baseline surveys of tax compliance costs for small and medium enterprises. The objective of the surveys was to document tax compliance costs for small businesses in South Africa, to identify the most onerous compliance burdens based on these costs as targets for reform and to serve as a baseline against which future progress can be measured.
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Over the past several years, there has been a growing interest in reforms to improve company registries in developing and transition countries, with a major focus on legal and institutional reforms.
... See More + In close association, researchers have been interested to use the databases created by company registries for purposes of statistical and economic analysis. In this regard, the new World Bank 'entrepreneurship database' is a very well conceived, potentially very powerful new research tool to track a critical component of different economies - the number of formal firms (or 'legal entities'), in 83 countries. The objective of this paper is to examine the quality of the data in the entrepreneurship database (which is being used increasingly in the World Bank Group for purposes of policy analysis and monitoring and evaluation), to identify the strengths and weaknesses of the data, and offer recommendations which may help, over time, to improve the quality of the data.
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This paper analyzes land transactions between municipalities and private businesses based on official data and business surveys in 15 regions of the Russian Federation.
... See More + Since the Russian Federation passed the new Land Code in 2001, land privatization has been officially encouraged by the federal government and in particular, land under previously privatized buildings was supposed to be privatized to the owner at a nominal price. The paper shows that many subnational authorities (which own or control the vast majority of land of interest to businesses) appear to use a combination of high statutory land buy-out prices and administrative barriers to deter land privatization and to offer "long-term leases" (which are not fully marketable) instead. On the other hand, regions that have established low buy-out prices and taken steps to remove unnecessary administrative barriers to land privatization appear to have higher rates of land ownership by businesses, and to face lower levels of corruption in the privatization process. The paper concludes that further reductions in the statutory prices for privatization of land under buildings and elimination of unnecessary administrative barriers should help to encourage further land privatization and the development of a competitive, secondary market in commercial land.
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Policy Research Working Paper WPS4115 JAN 01, 2007
EMU Enlargement: why flexibility matters, by Philipp Maier and Maarten Hendrikx. Gains from risk sharing in the EU, by Yuliya Demyanyk and Vadym Volosovych.
... See More + Postponing Euro area expectations? by Tanel Ross. European accession and capacity building priorities, by John S. Wilson, Xubei Luo, and Harry G. Broadman. Internal labor mobility and regional labor market disparities, by Pierella Paci, Erwin Tiongson, Mateusz Walewski, Jacek Liwinski, and Maria Stoilkova. Latvian labor market before and after EU Accession, by Mihails Hazans. The impact of EU accession on Poland's economy, by Ewa Balcerowicz. Bulgaria's integration into the pan-European economy, by Bartlomiej Kaminski and Francis Ng. Forming preferences on European integration: the case of Slovakia, by Tim Haughton and Darina Malova. Insert: Whither Europe? Credit expansion in emerging Europe. The economic cost of smoking in Russia, by Michael Lokshin and Zurab Sajaia. Deregulating business in Russia, by Ekaterina Zhuravskaya, and Evgeny Yakovlev. Land and real estate transactions for businesses in Russia, by Gregory Kisunko and Jacqueline Coolidge. Insert: Land Issues: Barriers for Small Businesses. Foreign bank profitability in Central and Eastern Europe, by Olena Havrylchyk and Emilia Jurzyk. Banking in Ukraine: changes looming? By Natalya Dushkevych and Valentin Zelenyuk. World Bank agenda. New books and working papers. Conference diary.
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EMU Enlargement: why flexibility matters, by Philipp Maier and Maarten Hendrikx. Gains from risk sharing in the EU, by Yuliya Demyanyk and Vadym Volosovych.
... See More + Postponing Euro area expectations? by Tanel Ross. European accession and capacity building priorities, by John S. Wilson, Xubei Luo, and Harry G. Broadman. Internal labor mobility and regional labor market disparities, by Pierella Paci, Erwin Tiongson, Mateusz Walewski, Jacek Liwinski, and Maria Stoilkova. Latvian labor market before and after EU Accession, by Mihails Hazans. The impact of EU accession on Poland's economy, by Ewa Balcerowicz. Bulgaria's integration into the pan-European economy, by Bartlomiej Kaminski and Francis Ng. Forming preferences on European integration: the case of Slovakia, by Tim Haughton and Darina Malova. Insert: Whither Europe? Credit expansion in emerging Europe. The economic cost of smoking in Russia, by Michael Lokshin and Zurab Sajaia. Deregulating business in Russia, by Ekaterina Zhuravskaya, and Evgeny Yakovlev. Land and real estate transactions for businesses in Russia, by Gregory Kisunko and Jacqueline Coolidge. Insert: Land Issues: Barriers for Small Businesses. Foreign bank profitability in Central and Eastern Europe, by Olena Havrylchyk and Emilia Jurzyk. Banking in Ukraine: changes looming? By Natalya Dushkevych and Valentin Zelenyuk. World Bank agenda. New books and working papers. Conference diary.
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Government inspections of firms are important for enforcing regulations to protect public health, safety, and the environment and to carry out economic functions such as tax collection and banking regulation.
... See More + But most inspection regimes in developing countries impose excessive costs on firms while failing dismally to prevent accidents or mitigate losses from disasters. There is a strong interest in models of reform that will reduce the burden of government inspections while improving standards. This paper offers solutions that do both.
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This background paper reviews the reform of the state inspections system in Latvia from 1999 through 2003. The aim of the case study is to illuminate the political and institutional reform elements and the intricate day-to-day management of such public sector reform endeavors, and highlight the mechanisms and management tools that are transferable and could be applied to similar reform efforts elsewhere.
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One explanation for Africa's failure to develop is the weakness of its public institutions. The authors consider one aspect of that weakness: rent-seeking and corruption at the top of government.
... See More + Under the conditions of their model, and autocrat who seeks to maximize personal financial return favors an inefficiently large public sector and distorts other public sector priorities more than does an autocrat who seeks to maximize national income. However, if civil servants and public officials are also venal, the ruler will not favor so large a government. To show how African regimes operate, the authors present four cases illustrating issues raised by their theoretical model. Among their observations about the relationship between the motivations of top officials and policies to control corruption and other types of rent-seeking are these: A kleptocrat whose decision variable is the level of government intervention in the economy will select an excessive level of interventions, in which national income is less than optimal. Like all monopolies, the kleptocrat seeks productive efficiency except where inefficiency creates extra rents. Facing a kleptocrat, citizens prefer a smaller than optimal-sized government but get one that is too big. A kleptocrat may need to permit lower-level officials to share in corrupt gains thus introducing additional costs. He or she will then favor a smaller government than if subordinates could be perfectly controlled. Dropping the assumption of a single dimension of government intervention, the kleptocrat will favor a different mixture of tax, spending, and regulatory programs than will a benevolent autocrat. Dropping the assumption that rulers are writing on a clean slate, decisions to privatize or nationalize firms can differ across autocratic regimes. In particular, although kleptocrats will often be reluctant to privatize, they may in some cases support privatization that a benevolent ruler would oppose. Investment in countries with kleptocratic rules may have an overly short-run orientation. When rent-seeking at top levels is pervasive, both natural resources and foreign aid under state control may hamper, not encourage, growth.
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Policy Research Working Paper WPS1780 JUN 30, 1997
