Tax compliance and SMEs: the OECD comparative study


A recent study by the OECD Tax Policy Studies titled “Taxation of SMEs in OECD and G20 Countries” provides insights into the impact of tax system on SMEs.

The report, that takes into account the experience of thirty-nine OECD and G20 countries, is divided in four chapters. The first chapter illustrates the role of SMEs in domestic economies, underlying their important contribution to employment, economic growth, innovation, diversity and competition of markets. The second chapter describes the different tax regimes that apply to SME income and discusses the impact of incomes taxation on the decisions of SME owners. Chapter three examines tax preferences, that may be used to lower the amount of tax payable by the SME or by an investor or owner of a SME. Finally, chapter four deals with SMEs and tax compliance.

In this regards, it is well known that, in addition to direct costs of taxes, the tax system also imposes a burden in terms of compliance costs. The report discuss measures that may be used to reduce the compliance burden on SMEs.

To this purpose, different techniques to simplify tax rules are presented, including the adoption of a simplified tax scheme for SMEs that replaces a number of other taxes.

Other approaches are based on the simplification of particular taxes, such as income taxes and VAT. The former include the replacement of regular income tax with presumptive taxes (such as lump-sum tax, indicator-based tax and turnover tax); the possibility to use cash accounting to calculate taxable income and other administrative measures (such as simplified rules for calculation of inventory, bad debts and long-term contracts, relaxation of the requirement to keep financial accounting books for tax purposes and simplified accounting regimes). The latter can be grouped into three main categories: those that provide for an exemption from the VAT regime, those that facilitate the calculation of VAT liability and, finally, those that simplify accounting, filing or payment obligations.

After describing and comparing the different measures adopted by the thirty-nine OECD and G20 countries, the report focuses on the importance of tax administration in facilitating compliance by delivering efficient procedures, good services, adequate guidance and taxpayer education. To this aim, it provides an overview of the various area of a tax system that are important in fostering compliance and describes the mail challenges that tax administration has to face in this field.

(Eleonora Cavalieri)