Tax Administration and the Small Taxpayer
IMF Policy Discussion Papers, May 1, 2004
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Bibliographic details
- Authors: Parthasarathi Shome
- Published: May 1, 2004
- Series: IMF Policy Discussion Papers
- DOI: https://doi.org/10.5089/9781451974577.003
Summary
- Small taxpayers should pay their appropriate revenue share while their compliance costs should be reduced.
- Rapid growth in services through self-employed small entrepreneurs in emerging markets increases the revenue potential of small taxpayers.
- Administrative facilitators such as a single tax covering income tax, VAT, and social security tax, at a reduced rate, do not lower tax evasion.
- Such single reduced-rate taxes increase vertical and horizontal inequity and lead to adverse resource allocation.
- A strategy is needed to extend modernization achieved in large taxpayer units (LTUs) to small taxpayers, including rationalization of collection and reporting of revenue data for policy formulation.
Key findings and observations
- Restructuring in emerging markets has produced rapid growth in services through self-employed small entrepreneurs, who have good revenue potential.
- Single-tax administrative facilitators (covering income tax, VAT, and social security tax at a reduced rate) are ineffective at lowering tax evasion.
- Single reduced-rate arrangements increase:
- vertical inequity,
- horizontal inequity,
- adverse resource allocation.
- Modernization efforts concentrated in LTUs should be extended to small taxpayers.
- Improved rationalization of collection and reporting of revenue data is necessary for effective policy formulation.
Policy recommendations
- Ensure small taxpayers pay their appropriate revenue share while reducing their compliance costs.
- Avoid relying on single reduced-rate taxes covering income tax, VAT, and social security tax as a tool to reduce evasion.
- Extend modernization and administration practices from large taxpayer units (LTUs) to small taxpayers.
- Rationalize collection and reporting of revenue data to support policy formulation.
Subject classifications and keywords (as listed)
- Subject: Economic sectors, Income tax systems, Revenue administration, Small and medium enterprises, Social security contributions, Tax administration core functions, Taxes, Value-added tax
- Keywords: administration measure, Asia and Pacific, Australia and New Zealand, Eastern Europe, GDP ratio, Income tax systems, large taxpayer units, North America, Northern Europe, PDP, revenue productivity, services sector, Small and medium enterprises, small taxpayer, small taxpayers, Social security contributions, tax administration, tax administration and the small taxpayer, Tax administration core functions, tax administrator, tax calculation, tax evasion, Tax policy, tax practice, tax simplification, tax statute, tax structure, taxpayer base, taxpayer group, taxpayer separation, taxpayer size, Value-added tax
Parthasarathi Shome, "Tax Administration and the Small Taxpayer", IMF Policy Discussion Papers 2004, 002; May 1, 2004; Pages: 33; DOI: https://doi.org/10.5089/9781451974577.003; Series: Policy Discussion Paper No. 2004/002; Stock No: PPIEA0022004; ISBN: 9781451974577; ISSN: 1564-5193.