Small taxpayers have characteristics of their own, for which reason the tax administrations (TAs) of the different countries provide them a differentiated treatment from the rest of the taxpayers.

Generally, they constitute a large number of taxpayers who contribute a very small or almost insignificant part of total tax collection.

That is why TAs focus most of their resources on controlling medium and large taxpayers as a means of weighing the cost-benefit relationship.

Nevertheless, although it is not adequate to devote significant resources for controlling these taxpayers, it is not convenient either to exclude them from every type of control. Among other reasons, because of their relationships with the remaining taxpayers which would affect the integrity of the tax system.

Countries have adopted several simplified systems (SS) for administering small taxpayers.  Some of them are applicable to direct taxes and others to indirect taxes, including likewise social security.

Some of the SS are independent laws from the rest of the taxes of a country, while in others they are dealt with in each law in particular.

Currently there are SS of a presumptive nature, tax substitution systems, presumptive taxes, proportional assessment of the tax base, on account payment systems and withholding and collection systems.

From the TAs’ standpoint, the following objectives, among others, should be proposed:

• Optimize their resources (human and materials)

• Promote the incorporation of taxpayers to the formal economy.

• Reduce indirect tax pressure.

• Reduce the control of compliance with tax obligations.

• Favor the growth and development of the small taxpayers with a view to strengthening small and medium enterprises.

There are different difficulties for applying the SS:

• The definition of small taxpayer: main aspect, determine the universe each country wants to include in the SS.

• The elements considered for inclusion in each of the different categories: it may be according to physical magnitudes (electricity and surface assigned to the activity), gross revenues and unit selling price, among others.

• Each country’s economic reality.

• The level of “tax culture” of the inhabitants: that is, the level of knowledge of the regulations by the taxpayers, the possibility of counting or not with professional counseling, etc.

• Avoid the so-called “fiscal dwarfism”; that is, those individuals who without being included in the SS, join them in order to fraudulently take advantage of the benefits, as well as those who enter in a lower category than the one corresponding to their activity.

As for the challenges posed by these SS to the TAs, it is my understanding that different objectives must be set, according to the time wherein we find ourselves, since it is not the same in the stage of implementation of the system than some time following its application.

Thus, for example, at the beginning of these systems the objective will be the adherence of the largest possible number of taxpayers, for which the Tax Administrations’ task will fundamentally be to provide information and assistance.

Nevertheless, experience indicates that since the beginning the Tax Administrations must undertake different actions to avoid the inclusion of those not entitled to be considered small taxpayers, and likewise prevent them from including themselves in categories lower than the corresponding ones, since there are always trends toward the subcategorization.

Eventually, these SS tend to distinguish themselves by their high delinquency and the trend toward subcategorization (fiscal dwarfism).

It is also a key issue to analyze how it affects the rest of the country’s Tax System.

Therefore, the main task of the Tax Administrations should be to avoid the aforementioned negative effects by means of computerized crosschecks and small verifications.

Nowadays many Tax Administrations have enormous amounts of information, which should allow them to undertake every type of controls, which are also facilitated by the obligation to issue electronic invoices or vouchers.

Of course, the Tax Administrations should propose the necessary regulatory modifications to avoid all the negative consequences thereof, such as high delinquency and “fiscal dwarfism”.

With respect to control, the strategy of the Tax Administrations should be focused on generating risks through extensive or massive controls.

For example, take advantage of ICTs and electronic invoices to carry out random controls and information crosschecks of acquisitions, sales, and number of workers and location of businesses.

As I always say, what is important is not to have information available, but rather that the latter be of quality and additionally, it may be effectively used.

In the area of information and assistance, small taxpayers should be provided ever more data of those available in the Tax Administrations and which are related to their parameters.

In this regard, it is good practice to count on special microsites for these types of taxpayers within the web portals of the Tax Administrations, as well as to design specific mobile apps for the sector.

The stratification of the different taxpayers, which is currently facilitated by risk analyses is very important.

By stratifying taxpayers, we may apply a differentiated control policy to every segment, regardless of which the control strategy should be unique, involving every type of controls (massive and intensive) and different actions in the same sense.

This helps to dissuade noncompliance, allows for counting on managerial information and facilitates the prompt and timely action of the Tax Administrations.

As I said at the beginning, undoubtedly it is convenient to devote the greater amount of human and technological resources to the large and medium taxpayers.

On the other hand, there are multiple benefits as well as some risks in counting with SS, as I have gone over in the present comment.

However, we should not disregard the fact that both differentiated control systems (large and small taxpayers) are not incompatible, but rather should complement and strengthen each other.

I understand it is advisable to create an intermediate system between the simplified and the general one so that it may be a sort of bridge between them.

This is especially so in countries where there is a significant difference in tax pressure between the SS and the General System.

The ideal situation is to count on a stable system of small and medium businesses that may serve as the bridge between both systems. Here I wish to point out that it should be stable, thereby creating certainty among the citizens.

I am convinced that taxation should favor the development of the small taxpayers in each country.

With this, I mean that they should first be taken from informality and included in the SS. After some time, once they have developed, to include the taxpayers in another system of small and medium enterprises.

There is no doubt that in all this process the Tax Administrations should be playing leading roles just like the different entities and organizations of each country, which should work jointly in pursuit of this objective.

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