Tax systems should be an effective and efficient means for governments to secure the revenue due, and to prevent tax leakage and the development of a black economy. But taxpayers should also be able to comply with tax requirements efficiently.
Small businesses represent the bulk of economic activity in most countries and regulation can have a disproportionate effect on small firms, as the smaller the business, the heavier the compliance cost.
Research has shown that the smallest companies incur five times more administrative burden per employee than larger firms (Businesses’ Views on Red Tape, OECD, 2001), so every effort must be made to increase the efficiency of compliance.
Some test questions for administrations to consider might include the following:
- Can related businesses be treated as single entities for tax purposes and so be able to make only a single tax filing?
- Do different parts of the tax authority make multiple enquiries of the same taxpayer?
- Are the sizes of tax return forms and the numbers of new or revised forms that need to be completed reasonable?
- Does the taxpayer have a choice of completing a paper return or an electronic return?
Governments should embrace new technology where practical to streamline the administration of the tax system. Tax is an integral part of economic activity. As economic activity changes, so should taxation.
Computerisation of banking systems, the virtualisation of trade and commerce, and the move to technologies such as e-invoicing and digitalisation of tax returns, have profound implications for the measurements and remission of taxes on income and consumption, in particular.