Comments on SMBs and employees

I have just participated in an interesting workshop in Panama, financed by the United Nations and coordinated by the CIAT, in which were presented the conclusions of a study about designing a methodology for the tax transaction costs (administrative costs and compliance costs) for the small and medium-sized enterprises in Latin America.

There is no doubt that making compliance as easy as possible for SMEs, and in general for any taxpayer (regardless of its size and condition of legal entity or individual), ensures a higher revenue collection to any Tax Administration (TA) since the number of people who would comply “voluntarily” with their obligation will of course increase. In addition, facilitating and simplifying tax compliance helps informal taxpayers (in the underground economy), to formally declare their income and expenses to the TA and become registered.

It seems therefore that making sure that these compliance costs are the minimum for their taxpayers is a benefit for the TA. But however, how many TAs have measured these compliance costs? What about administrative costs (i.e., the own TAs’ collection costs)?

In countries such as Spain, being a salaried employee avoids high compliance costs (measured in time, economic and psychological costs), due to the large facilities developed by the AEAT in recent years in terms of telematic services and provision of the “income draft”.  Is it the same in your countries or is it still difficult to comply even for employees and workers because complying with obligations is not that simple? In a context of economic crisis as in Spain, for example, self-employed workers are in growing numbers: How much does it cost for them to comply with their obligations? How much is spent on tax advisors and tax formalities? And how much do all these efforts cost psychologically? Perhaps the TAs should measure the compliance costs for this profile of taxpayers to facilitate and simplify their tax obligations because failure to do so will increase the number of citizens who opt for informal alternatives (in “B”).

One of the main conclusions of the above mentioned workshop is that there is a regressive cost of tax transactions according to the size of the company in America Latina (but it is a worldwide problem ). I.e. smaller businesses support more costs to comply with their tax obligations than others. In Spain, and possibly in many of your countries, SMEs are the main economic support and source of employment so it is necessary to take into account these aspects and study them to improve them.

And what kind of taxpayer profile do you have? How expensive is it for you to you comply with your tax obligations? Do you think that if tax administrations facilitate and simplify these procedures, people would pay more and more willingly?

Let’s keep thinking about it.

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