How to Design a Presumptive Income Tax for Micro and Small Enterprises

June 29, 2023

Preview Citation

Format: Chicago

Jean-François Wen. How to Design a Presumptive Income Tax for Micro and Small Enterprises, (USA: International Monetary Fund, 2023) accessed December 21, 2024

Summary

Turnover taxes are prevalent in developing countries as a simple form of presumptive taxation of business income. Such simplified tax regimes can reduce the relatively high compliance costs of micro and small enterprises, which might otherwise discourage entrepreneurs from formalizing their activities and paying taxes. The note addresses design issues for a turnover tax regime—which taxes it replaces, what the criteria are for eligibility, how to determine the optimal threshold, and how to set the tax rate. A key observation is that, although low turnover tax rates may incite larger firms to artificially reduce their sales, the rate should also not be so high as to discourage formalization of activities. A table of tax rates and turnover thresholds observed internationally is provided. The note concludes by suggesting analytical steps to guide practitioners in designing turnover tax regimes.

Subject: Corporate income tax, Economic sectors, Effective tax rate, Financial crises, Income and capital gains taxes, Income tax systems, Sales tax, Tax policy, Taxes

Keywords: Africa, Corporate income tax, Eastern Europe, Effective tax rate, IMF library, Income and capital gains taxes, Income tax systems, Informal sector, Microenterprises, Presumptive tax, Sales tax, South America, Taxpayer Compliance cost, Turnover tax, Turnover tax rate, Turnover tax systems, West Africa, Western Europe

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

How-To Note No 2023/002
Stock No:

HTNEA2023002
ISBN:

9798400241154
ISSN:

2522-7912

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