This report 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. Differing income tax and social security contribution
burdens of unincorporated and incorporated SMEs are considered in detail, with
analysis of average statutory tax rates carried out to investigate possible tax
distortions to business creation and business structure decisions of a single
worker/owner of an SME.
Various arguments are presented for and against
the targeting of tax incentives at SMEs. Along with traditional market failure
arguments, the publication considers whether certain basic tax provisions, with
uniform application to firms of all sizes, may result in a relatively high tax
burden on SMEs, possibly creating impediments to SME creation and growth. One
such argument is that SMEs face a disproportionately high tax compliance cost
burden compared to larger businesses, calling for adjustments to administrative
approaches and/or policy to address impediments to SMEs posed by tax compliance
cost considerations. The publication also provides country examples of SME tax
incentives and compliance cost reduction measures.
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