Estimating and Alleviating the Goods and Services Tax Compliance Cost Burden Upon Small Business

Abstract

The burden of small business acting as an ‘unpaid tax collector’, particularly for the Goods and Services Tax (GST), is currently subject to much political debate in Australia. However, realistic proposals as how best to alleviate this burden are few and far between. This article reviews international estimates of small business tax compliance costs, particularly for the GST, that clearly demonstrate regressivity and the large relative burden faced by small business. Estimates of small business GST start-up costs and their relevance for recurrent costs are considered, with the importance of offsetting benefits, including cash flow and managerial benefits, being recognised. The key part of the article assesses four major ways of alleviating the ‘GST paperwork’ burden upon small business: (monetary) compensation; raising the GST registration threshold level; improved tax payment arrangements; and taxpayer education. Based on UK and French experience, it appears that, for Australia, an extension of existing policies, particularly simplified tax payment arrangements, offer the best prospects. However, such policies need to be carefully crafted with some degree of innovation and less emphasis on the tax revenue foregone.