How To Design A Presumptive Income Tax For Micro And Small Enterprises

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How To Design A Presumptive Income Tax For Micro And Small Enterprises

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Author : Jean-François Wen
language : en
Publisher: International Monetary Fund
Release Date : 2023-06-29

How To Design A Presumptive Income Tax For Micro And Small Enterprises written by Jean-François Wen and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-06-29 with Business & Economics categories.

Turnover taxes are prevalent in developing countries as a simple form of presumptive taxation of business income. Such simplified tax regimes can reduce the relatively high compliance costs of micro and small enterprises, which might otherwise discourage entrepreneurs from formalizing their activities and paying taxes. The note addresses design issues for a turnover tax regime—which taxes it replaces, what the criteria are for eligibility, how to determine the optimal threshold, and how to set the tax rate. A key observation is that, although low turnover tax rates may incite larger firms to artificially reduce their sales, the rate should also not be so high as to discourage formalization of activities. A table of tax rates and turnover thresholds observed internationally is provided. The note concludes by suggesting analytical steps to guide practitioners in designing turnover tax regimes.

The Design Of Presumptive Tax Regimes

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Author : Mariona Mas-Montserrat
language : en
Publisher:
Release Date : 2023

The Design Of Presumptive Tax Regimes written by Mariona Mas-Montserrat and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.

Presumptive tax regimes, also known as simplified tax regimes, simplify the tax compliance process for micro and small businesses. By reducing tax compliance costs and levying lower tax rates compared to the standard tax system, these regimes aim at encouraging business formalisation and compliance. They are particularly useful in situations where actual taxable income is difficult to quantify as a taxpayer's tax base is determined using alternative indicators. Although these regimes exist in many tax systems, they vary greatly in their design. This OECD working paper provides an analytical framework for characterising and comparing these regimes. It also highlights key design aspects that deserve further consideration and lists a series of best practices on the design and administration of these regimes.

Designing A Presumptive Income Tax Based On Turnover In Countries With Large Informal Sectors

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Author : Feng Wei
language : en
Publisher: International Monetary Fund
Release Date : 2023-12-22

Designing A Presumptive Income Tax Based On Turnover In Countries With Large Informal Sectors written by Feng Wei and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-12-22 with Business & Economics categories.

Turnover (sales) is frequently used in developing countries as a presumptive income tax base, to economize on the costs of tax administration and taxpayer compliance. We construct a simple model where a size threshold separates firms paying turnover tax from those paying profit tax (regular income tax), and where firms have the option of producing in the untaxed, informal sector. The optimal turnover tax rate trades off two policy concerns: reducing informality and avoiding strategic reductions in sales by firms seeking to remain below the threshold for the profit tax. We provide analytical results and calibrate the model to compute the optimal policy using realistic parameter values. The optimal turnover tax rate for countries with large informal sectors is found to be around 2.5% across most scenarios, while the threshold separating the turnover tax regime from profit tax lies for the most part between $65,000 and $95,000. Introducing an optimally designed turnover tax reduces the rate of informality of businesses by about 12 percentage points in the calibrated model.

Presumptive Taxation In Sub Saharan Africa

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Author : Mr.Günther Taube
language : en
Publisher: International Monetary Fund
Release Date : 1996

Presumptive Taxation In Sub Saharan Africa written by Mr.Günther Taube and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996 with Business & Economics categories.

This paper analyses presumptive taxation methods and their application in Sub-Saharan Africa. Presumptive taxation involves simple techniques to capture domestic transactions and sources of income that frequently escapes conventional taxation.

Oecd Tax Policy Studies Taxation Of Smes Key Issues And Policy Considerations

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Author : OECD
language : en
Publisher: OECD Publishing
Release Date : 2009-10-12

Oecd Tax Policy Studies Taxation Of Smes Key Issues And Policy Considerations written by OECD and has been published by OECD Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-10-12 with categories.

This publication examines the taxation of SMEs in OECD countries and covers a broad range of SME taxation issues, including possible effects of taxation on the creation and growth of SMEs, and considerations arising from a relatively high compliance burden.

The Optimal Turnover Threshold And Tax Rate For Smes

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Author : Feng Wei
language : en
Publisher: International Monetary Fund
Release Date : 2019-05-07

The Optimal Turnover Threshold And Tax Rate For Smes written by Feng Wei and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-05-07 with Business & Economics categories.

Presumptive income taxes in the form of a tax on turnover for SMEs are pervasive as a way to reduce the costs of compliance and administration. We analyze a model where entrepreneurs allocate labor to the formal and informal sectors. Formal sector income is subjected either to a corporate income tax or a tax on turnover, depending on whether their turnover exceeds a threshold. We characterize the private sector equilibrium for any given configuration of tax policy parameters (corporate income tax rate, turnover tax rate, and threshold). Given private behavior, social welfare is optimized. We interpret the first-order conditions for welfare maximization to identify the key margins and then simulate a calibrated version of the model.

A Firm Lower Bound Characteristics And Impact Of Corporate Minimum Taxation

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Author : Aqib Aslam
language : en
Publisher: International Monetary Fund
Release Date : 2021-06-08

A Firm Lower Bound Characteristics And Impact Of Corporate Minimum Taxation written by Aqib Aslam and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-06-08 with Business & Economics categories.

This paper examines the role of minimum taxes and attempts to quantify their impact on economic activity. Minimum taxes can be effective at shoring up the corporate tax base and enhancing the perceived equity of the tax system, potentially motivating broader taxpayer compliance. Where political and administrative constraints prevent reforms to the standard corporate income tax, a minimum tax can help mitigate base erosion from excessive tax incentives and avoidance. Using a new panel dataset that catalogues changes in minimum tax regimes over time around the world, firm-level analysis suggests that the introduction or reform of a minimum tax is associated with an increase in the average effective tax rate of just over 1.5 percentage points with respect to turnover and of around 10 percent with respect to operating income. Minimum taxes based on modified corporate income lead to the largest increases in effective tax rates, followed by those based on assets and turnover.

Brazil Tax Expenditure Rationalization Within Broader Tax Reform

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Author : Maria Delgado Coelho
language : en
Publisher: International Monetary Fund
Release Date : 2021-09-24

Brazil Tax Expenditure Rationalization Within Broader Tax Reform written by Maria Delgado Coelho and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-09-24 with Business & Economics categories.

The excessive complexity and burden of the Brazilian tax system, riddled by cumulative indirect taxes and heavy payroll contributions, have led to an accumulation of fiscal incentives aimed at reducing its burden on taxpayers and productive activities. Federal and subnational tax expenditures currently stand at over 5 percent of GDP. Rationalizing them can only be comprehensively feasible in the context of a broader sequenced tax reform, and could reduce resource misallocation and income inequality, as well as provide new revenues.

Revenue Mobilization In Developing Countries

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Author : International Monetary Fund. Fiscal Affairs Dept.
language : en
Publisher: International Monetary Fund
Release Date : 2011-08-03

Revenue Mobilization In Developing Countries written by International Monetary Fund. Fiscal Affairs Dept. and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-08-03 with Business & Economics categories.

The Fund has long played a lead role in supporting developing countries’ efforts to improve their revenue mobilization. This paper draws on that experience to review issues and good practice, and to assess prospects in this key area.

The Russian Flat Tax Reform

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Author : Anna Ivanova
language : en
Publisher: International Monetary Fund
Release Date : 2005-01-01

The Russian Flat Tax Reform written by Anna Ivanova and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005-01-01 with Business & Economics categories.

Russia dramatically reduced its higher rates of personal income tax (PIT) in 2001 establishing a single marginal rate at the low level of 13 percent. In the following year, real revenue from the PIT actually increased by about 26 percent. This 'flat tax' experience has attracted much attention (and emulation) among policymakers, making it perhaps the most important tax reform of recent years. But it has been little studied. This paper asks whether the strong revenue performance of the PIT was itself a consequence of this reform, using both macro evidence and, in particular, micro-level data on the experiences of individuals and households affected by the reform to varying degrees. It concludes that there is no evidence of a strong supply side effect of the reform. Compliance, however, did improve quite substantially-by about one third according to our estimates-though it remains unclear whether this was due to the parametric reforms or to accompanying changes in enforcement.