Tax Base Erosion in Developing Countries

Objective: Measuring tax compliance and evasion is particularly challenging because tax evaders have a strong incentive to conceal their actions. While assessing any crime presents similar difficulties, tax evasion is unique in that it lacks identifiable victims, meaning there are no victim reports or surveys to gather data from. However, unlike most crimes, changes in tax evasion can be observed through fluctuations in reported tax bases. The fear of punishment and potential social stigma makes many taxpayers reluctant to provide truthful responses, even in surveys conducted by organizations not affiliated with tax authorities. Consequently, almost all empirical studies on tax compliance and evasion, even the most reliable ones, lack an accurate measure of compliance and evasion. Voluntary tax compliance as a function of the tax rate is a critical determinant of tax revenue collection. As a result, a model and estimation methodology have been developed in this article to explore this relationship. Methods: This research offers a novel methodology for estimating tax compliance and the underground consumption by theoretically introducing and empirically estimating a tax compliance function for the cigarette industry in Pakistan. Results: In Pakistanʼs cigarette industry, the tax compliance rate is 11.53%, and 37.5% of cigarette consumption is underreported in surveys. Conclusion: Fractional compliance is inversely related to the tax rate. Tax revenue initially increases with higher tax rates, reaching a peak before declining as the tax rate rises. On the other hand, gross domestic product (GDP) behaves oppositely to the tax revenue. The highest GDP occurs at either a 0% or 100% tax rate, where tax revenue is zero. As the tax rate rises, GDP decreases initially until it reaches a minimum, after which it begins to increase again, eventually reaching its peak at a 100% tax rate at a specific point in time. This contrasts with the Laffer Curve, which suggests that a decrease in the supply of goods leads to lower tax revenue as the tax rate increases. (JEL A14, H19, H83)

Many governments worldwide are concerned about tax evasion and avoidance, which has been studied extensively over the years. The primary goal of this research is to convey Albanian citizens’ and taxpayers’ perspectives on tax evasion, avoidance, and compliance. Several studies are being conducted worldwide to assess the public’s perception of demographic factors influencing tax evasion and avoidance. The principal indicators used in this paper, such as the attitude toward tax evasion and tax avoidance, are based on individual taxpayer perceptions rather than real evidence. This issue is particularly acute in many developing and developed economies, including Albania. Tax evasion erodes the government’s ability to raise revenue impartially and cost-effectively. Tax evasion creates inequality among citizens/taxpayers and economic difficulties for the country. Because of the lower revenue generated by tax evasion, the state coffers cannot provide public services such as health, transportation, and justice that are tailored to the needs of taxpayers and the contributor’s rights. However, current research into the factors influencing tax evasion and avoidance in Albania is still limited. We analyzed data from a survey sent to 387 individual taxpayers in Albania to achieve our goals. We discovered relationships between socio-demographic factors and their impact on an individual’s ethical perception of tax avoidance and evasion using empirical analysis. For the statistical analyses in this paper, we used Fisher’s Exact Test on count matrices using R studio and JMP statistical software. Based on our empirical findings, we concluded that gender, marital status, level of education, and residential area all impact tax compliance and ethics. While there is a statistically significant relationship between employment status and influence on tax evasion and avoidance, insufficient evidence demonstrates a trend. No statistically substantial dependence was found for the age determinant. The study’s findings may be helpful to researchers, policymakers’ institutions, and practitioners.

Contents: Volume I Acknowledgements Introduction David A. Weisbach PART I TAX NORMS 1. Thomas Griffith (1993), 'Should Norms be Abandoned? Rethinking Tax Policy Analysis and the Taxation of Personal Injury Recoveries' 2. Louis Kaplow (1989), 'Horizontal Equity: Measures in Search of a Principle' PART II THE BASIC ECONOMICS OF TAXATION A Commodity Taxation 3. William J. Baumol and David F. Bradford (1970), 'Optimal Departures from Marginal Cost Pricing' 4. David A. Weisbach (2000), 'An Efficiency Analysis of Line Drawing in the Tax Law' B Incidence and Distribution 5. Michael Graetz (1995), 'Paint-by-Numbers Tax Lawmaking' 6. Boris I. Bittker (1975), 'Tax Shelters and Tax Capitalization, or, Does the Early Bird Get a Free Lunch?' 7. Boris I. Bittker (1979), 'Equity, Efficiency, and Income Tax: Do Misallocations Drive Out Inequities?' C Progressivity 8. Joseph Bankman and Thomas Griffith (1987), 'Social Welfare and Rate Structure: A New Look at Progressive Taxation' 9. Joel Slemrod, Shlomo Yizhati, Joram Mayshar and Michael Lundholm (1994), 'The Optimal Two-Bracket Linear Income Tax' 10. George Akerlof (1978), 'The Economics of Tagging as Applied to the Optimal Income Tax, Welfare Programs, and Manpower Planning' 11. Albert L. Nichols and Richard J. Zeckhauser (1982), 'Targeting Transfers through Restrictions on Recipients' D Combining Commodity Taxation and Progressivity 12. Louis Kaplow (2006), 'On the Undesirability of Commodity Taxation Even When Taxation is Not Optimal' 13. Louis Kaplow (2004), 'On the (Ir)Relevance of Distribution and Labor Supply Distortion to Government Policy' PART III THE CHOICE OF THE TAX BASE - THEORY A What is Income Taxation? 14. Louis Kaplow (1994), 'Taxation and Risk Taking: A General Equilibrium Perspective' 15. Alvin C. Warren, Jr. (1996), 'How Much Capital Income Taxed Under an Income Tax is Exempt Under a Cash Flow Tax?' B The Comparison Between Consumption and Income Taxation 16. William D. Andrews (1974), 'A Consumption-Type or Cash Flow Personal Income Tax' 17. Alvin C. Warren (1980), 'Would a Consumption Tax be Fairer Than an Income Tax?' 18. Joseph Bankman and David A. Weisbach (2006), 'The Superiority of an Ideal Consumption Tax Over an Ideal Income Tax' C Changing Tax Bases 19. Michael J. Graetz (1977), 'Legal Transitions: The Case of Retroactivity in Income Tax Revision' 20. David F. Bradford (1996), 'Consumption Taxes: Some Fundamental Transition Issues' 21. David F. Bradford (1998), 'Transition to and Tax-Rate Flexibility in a Cash-Flow-Type Tax' Name Index Volume II Acknowledgements Introduction David A. Weisbach PART I THE CHOICE OF THE TAX BASE - IMPLEMENTATION A Implementing a Consumption Tax 1. David A. Weisbach (2000), 'Ironing Out the Flat Tax' 2. Harry Grubert and T. Scott Newlon (1995), 'The International Implications of Consumption Tax Proposals' B Implementing a Tax on Capital Income 3. William D. Andrews (1983), 'The Achilles' Heel of the Income Tax' 4. Alan J. Auerbach and David F. Bradford (2004), 'Generalized Cash-Flow Taxation' 5. Daniel I. Halperin (1985), 'Interest in Disguise: Taxing the Time Value of Money' 6. Alvin C. Warren (1993), 'Financial Contract Innovation and Income Tax Policy' 7. Noel Cunningham and Deborah Schenk (1993), 'The Case for a Capital Gains Preference' PART II ADMINISTRATION AND COMPLIANCE A In General 8. Michael G. Allingham and Agnar Sandmo (1972), 'Income Tax Evasion: A Theoretical Analysis' 9. Shlomo Yitzhaki (1974), 'A Note on Income Tax Evasion: A Theoretical Analysis' 10. Shlomo Yitzhaki (1979), 'A Note on Optimal Taxation and Administrative Costs' 11. Joel Slemrod and Shlomo Yitzhaki (1996), 'The Cost of Taxation and the Marginal Efficiency Costs of Funds' 12. Joel Slemrod and Wojciech Kopczuk (2002), 'The Optimal Elasticity of Taxable Income' B Shelters 13. Joseph Bankman (1999), 'The New Market in Corporate Tax Shelters' 14. David A. Weisbach (1999), 'Formalism in the Tax Law' PART III THE TAXABLE UNIT 15. Boris I. Bittker (1975), 'Federal Income Taxation and the Family' 16. Edward J. McCaffrey (1993), 'Taxation and the Family: A Fresh Look at Behavioral Gender Biases in the Code' PART IV TAX EXPENDITURES 17. Stanley S. Surrey (1970), 'Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Expenditures' 18. Boris I. Bittker (1967), 'A Comprehensive Tax Base as a Goal of Income Tax Reform' 19. Anne L. Alstott (1995), 'The Earned Income Tax Credit and the Limitations of Tax-Based Welfare Reform' Name Index

Individual income tax compliance has been one of the most significant applications of Becker's [6] economic approach to criminal activity and punishment. This paper considers an approach to optimal audit policies that relies on the distribution of risk aversion among taxpayers and is consistent with some stylized facts about the U.S. tax system. Rather than considering the tax evasion situation as a game between the tax collector and identical taxpayers, this model has the tax collector choose an audit probability to maximize expected tax revenues net of audit costs knowing that each taxpayer has a reservation audit probability-the smallest audit probability that would evoke truthful reporting-depending on how averse to risk she is. As the heterogeneity in the population vanishes, this problem becomes the same as the tax compliance problem analyzed in Graetz, Reinganum, and Wilde [9]. This paper extends earlier contributions by analyzing income tax evasion and compliance with a population that is heterogeneous with respect to risk aversion. How other parameters of the problem influence optimal audit probabilities as well as the equilibrium proportion of tax evaders will be explored. The diversity in preferences over lotteries leads to some interesting comparative static results. For example, the impact of an increase in the penalty for lying is ambiguous in this model. The graphical approach taken here allows us to identify the relevant factors and how they interact. Additionally, this analysis makes it clear why the distribution of risk aversion in the population affects the equilibrium audit probability, but not the proportion of tax evaders. This problem has been approached in several different ways.1 For example, Clotfelter [7], Slemrod [15], Aim and Beck [2], and Witte and Woodbury [16] have studied this phenomenon econometrically, but the dearth of reliable data has made empirical analysis difficult. Other economists-most noteworthy, Alm, McClelland, and Schulze [5] and Alm, Jackson, and McKee [4]have taken a different tack, employing the methods of experimental economics. While these seminal studies have shed substantial light on taxpayer behavior, a leap of faith is required to extrapolate from the laboratory to actual tax compliance decisions. The theoretical tax compliance literature originally focused on the behavior of the taxpayer, as in Allingham and Sandmo [1]. That is, individuals were modeled as expected utility maximizers with exogenously given audit probabilities. More recent contributions to the theoretical literature, Reinganum and Wilde [12; 13], and Graetz, Reinganum, and Wilde [9] for example, have

Political economy of corruption: the case of tax evasion in Bangladesh

Tax evasion and tax avoidance are among the most addressed topics in economic literature in recent years, as one of the most discussed issues in different countries. The research’s primary purpose is to present Albanian residents’ and taxpayers’ perceptions regarding tax evasion, tax avoidance, and tax compliance. The leading indicators used in this report, the attitude towards tax evasion and tax avoidance, rely on individual taxpayers’ perceptions and not on factual evidence such as the amount of income hidden from the tax authorities. Several studies have been done in different countries regarding the population’s perception regarding factors affecting evasion. In this paper, we investigated the following logical sequence: in the beginning, we provided an overview of the fiscal system and legislation, informal economy, and fiscal evasion in Albania. This analysis data was taken from reports from national and international organizations. After this, we analyzed data obtained from a survey issued to 387 taxpayer individuals in Albania. Our objective was to identify, using empirical analysis, factors that influence an individual’s ethical perception of tax avoidance and evasion. The statistical analyses we carried out in the paper were factor analyses and ordinal logistic linear regression analyses using the JMP statistical software. Based on the empirical research, we concluded that government policies positively correlate with taxpayers’ behavior regarding tax compliance. Among other determinants influencing tax evasion, we have evaluated that higher tax rates are an essential element. The results of the research can be helpful for governments and other policymakers’ institutions.

The ethics of tax evasion has been discussed sporadically in the theological and philosophical literature for at least 500 years. Martin Crowe wrote a doctoral thesis that reviewed much of that literature in 1944. The debate revolved around about 15 issues. Over the centuries, three main views evolved on the topic. This paper begins with a review of the literature and identifies the main issues and summarizes the three main viewpoints that have emerged over the centuries. It then reports on the results of two surveys of members of the Jewish faith who were asked their opinions on the ethics of tax evasion. The results of the two surveys were then compared. Male scores were also compared to female scores to determine if the responses differed by gender. INTRODUCTION The vast majority of articles that have been written about tax evasion have been written from the perspective of public finance. They discuss technical aspects of tax evasion and the primary and secondary effects that tax evasion has on an economy. In many cases there is also a discussion about how to prevent or minimize tax evasion. Very few articles discuss ethical aspects of tax evasion. Thus, there is a need for further research, which the present study is intended to partially address. As part of this study a survey instrument was developed based on the issues that have been discussed and the arguments that have been made in the tax evasion ethics literature over the last 500 years. Similar survey instruments were used to test sample populations in Romania, Guatemala and a few other countries that will be mentioned later in this paper. The present study reports on the findings of a survey that was distributed to undergraduate Orthodox Jewish students at a branch of Touro College in New York. The results of the present study are also compared to the findings of a human values study that touched on the ethics of tax evasion (Inglehart et al, 2004). REVIEW OF THE LITERATURE Although many studies have been done on tax compliance, very few have examined compliance, or rather noncompliance, primarily from the perspective of ethics. Most studies on tax evasion look at the issue from a public finance or economics perspective, although ethical issues may be mentioned briefly, in passing. The most comprehensive twentieth century work on the ethics of tax evasion was a doctoral thesis written by Martin Crowe (1944), titled The Moral Obligation of Paying Just Taxes. This thesis reviewed the theological and philosophical debate that had been going on, mostly within the Catholic Church, over the previous 500 years. Some of the debate took place in the Latin language. Crowe introduced this debate to an English language readership. A more recent doctoral dissertation on the topic was written by Torgler (2003), who discussed tax evasion from the perspective of public finance but also touched on some psychological and philosophical aspects of the issue. Walter Block (1989; 1993) sought in vain to find a justification for taxation in the public finance literature. He examined a number of textbooks but found all justifications for taxation to be inadequate. Leiker (1998) speculates on how Rousseau would have viewed the ethics of tax evasion. Alfonso Morales (1998) examined the views of Mexican immigrant street vendors and found that their loyalty to their families exceeded their loyalty to the government. McGraw and Scholz (1991) examined tax compliance from the perspective of self-interest. Armstrong and Robison (1998) discuss tax evasion and tax avoidance from the perspective of an accounting practitioner and used Rawls' concept of two kinds of rules to analyze how accountants view the issue. Oliva (1998) looked at the issue from the perspective of a tax practitioner and commented on the schism that exists between a tax practitioner's ethical and legal obligations. There have been a few studies that focus on tax evasion in a particular country. …

This paper summarizes the arguments and counterarguments within the scientific discussion on tax evasion. The main purpose of the research is to explore how leaders in the manufacturing industries could understand the drivers of tax evasion in manufacturing companies, which may prevent sanctions from tax authorities in Lagos State, Nigeria. Systematization of the literary sources and approaches for solving the problem of low tax revenues indicated the presence of a significant number of drivers of tax evasion. The relevance of this scientific problem decision is that high levels of tax evasion can lead to a decrease in tax revenues to such an extent that it will threaten the ability of the Nigerian government to finance fiscal measures. Investigation of the topic of tax evasion in the paper is carried out in the following logical sequence: at the first stage, an analysis of taxpayers; compliance attitude in developing countries and the level of tax compliance and tax evasion was conducted. In the second stage, factors affecting tax compliance and factors influencing tax evasion were summarized and analyzed in the article, and the economic consequences of these processes were determined. Methodological tools of the research methods were the methods of generalization, analysis, and synthesis of scientific literature, formalization, and abstraction. The object of research is the theories and/or concepts of tax evasion, in particular: the theory of reasoned action and the theory of technology adoption life cycle. The article presents the results of an empirical analysis of the drivers of tax evasion, which proved that manufacturing companies deliberately fail to submit the required tax return documentation to avoid tax obligations. The study empirically confirms and theoretically proves that the list of drivers of tax evasion may also include other reasons for tax evasion for manufacturing companies, such as a lack of education and understanding of the tax documentation requirements, process issues, technology access issues, and others. The results of the research can be useful for the tax authorities in Lagos to educate other sectors that engage in tax evasion to increase the rate of overall tax compliance.

Effective tax collection is one of the most important problems facing governments and the cornerstone of a fair tax system. It is essential to prevent the loss of uncollected tax revenues due to non-compliance resulting from tax avoidance and evasion practices. The research aims to highlight the use of artificial intelligence in auditing to address the challenges facing tax administrations and to demonstrate how to deal with and reduce the problem of the tax gap, given its clear impact on lost tax revenues for the benefit of the state's public treasury. This is achieved by relying on the descriptive analytical approach based on describing the use of artificial intelligence techniques in auditing and analyzing its benefits, as it has become an integral part of the routine procedures required by tax administrations in order to decrease the tax gap, protect lost revenues through tax evasion, and achieve justice. In addition, the statistical analysis method is adopted to demonstrate the nature of the relationship between the independent and dependent research variables according to a questionnaire designed from two axes and distributed to a purposive sample of (80) estimators and auditors working in tax administrations. The results of the hypotheses were tested according to the statistical program (SPSS). The value of the research was represented in the results reached, the most prominent of which is the existence of a significant correlation between the use of artificial intelligence in auditing and reducing the tax gap. This confirms the significant role of using artificial intelligence techniques in auditing as an effective means of raising the efficiency of tax administration By simplifying procedures, improving the work environment, increasing employee satisfaction, and enhancing the effectiveness of tax collection, the study concluded that tax administrations must invest resources in developing and adopting modern artificial intelligence technologies, including data analysis programs, machine learning systems, and expert systems. There is also the need to establish clear regulatory policies to ensure the ethical and safe use of AI technologies while protecting taxpayer data.

The ethics of tax evasion has been discussed sporadically in the theological and philosophical literature for at least 500 years. Over the centuries, three main views evolved on the topic, but the business ethics literature has paid scant attention to this issue, perhaps because of the belief that tax evasion is always unethical. This paper reports the results of an empirical study of opinion in Utah and New Jersey. The arguments that have been made over the centuries to justify tax evasion were ranked to determine which arguments are strongest and which are weakest. Scores were compared between samples to determine whether the responses were significantly different. Keywords: Ethics, Tax evasion INTRODUCTION The vast majority of articles that have been written about tax evasion have been written from the perspective of public finance. They discuss technical aspects of tax evasion and the primary and secondary effects that tax evasion has on an economy. In many cases there is also a discussion about how to prevent or minimize tax evasion. Very few articles discuss ethical aspects of tax evasion, so there is a need for further research which this study is intended to partially address. This study reports on the findings of a survey that was distributed to business students at colleges in Utah and New Jersey. The survey instrument consisted of 18 statements that reflect the three views on the ethics of tax evasion that have emerged over the centuries. Scores were compared to determine whether the responses were significantly different by state. Although many studies have been done on tax compliance, very few have examined compliance, or rather noncompliance, primarily from the perspective of ethics. Most studies on tax evasion look at the issue from a public finance or economics perspective, although ethical issues may be mentioned briefly in passing. The most comprehensive twentieth century work on the ethics of tax evasion was a doctoral thesis written by Martin Crowe [1]. This thesis reviewed the theological and philosophical debate that had been going on, mostly within the Catholic Church, over the previous 500 years. A more recent dissertation on the topic was written by Torgler [2], who also touched on some psychological and philosophical aspects of the issue. There have been a few studies that focus on tax evasion in a particular country. Ethics are sometimes discussed but, more often than not, the focus of the discussion is on government corruption and the reasons why the citizenry does not feel any moral duty to pay taxes to such a government. A number of articles have also been written from various religious perspectives.

This paper attempts to estimate the size and distribution of tax evasion in rich countries. We combine random audits - the key source used to study tax evasion so far - with new micro-data leaked from large offshore financial institutions - HSBC Switzerland (Swiss leaks) and Mossack Fonseca (Panama Papers) matched to population-wide wealth records in Norway, Sweden, and Denmark. We find that tax evasion rises sharply with wealth, a phenomenon random audits fail to capture. On average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to close to 30% in the top 0.01% of the wealth distribution, a group that includes households with more than $45 million in net wealth. A simple model of the supply of tax evasion services can explain why evasion rises steeply with wealth. Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly, highlighting the need to move beyond tax data to capture income and wealth at the top, even in countries where tax compliance is generally high. We also find that after reducing tax evasion - by using tax amnesties - tax evaders do not legally avoid taxes more. This result suggests that fighting tax evasion can be an effective way to collect more tax revenue from the very wealthy.

In this paper, we use a tax compliance game with a public good to investigate the impact of public disclosure on tax evasion behavior experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces her own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. Both these effects are supported by the experimental results. However, the shame effect reduces tax evasion only in the short run. The influence of shame diminishes over the course of the experiment with subjects observing the non-compliance of other participants. Thus, our results indicate that when the contagion and the shame effect are present the latter is not strong enough to override the former in the long run. Furthermore, disclosing tax information anonymously increases tax evasion compared to providing no information on tax evasion behavior. These observations are of particular importance for tax policy because public disclosure may lead to more evasion instead of less when supporting a crowding-out of the tax morale.

Tax evasion and public expenditures on tax revenue services in an endogenous growth model

Tax revenues are major and important income sources for governments in most countries. Sufficient tax revenues make many government projects possible and help elected officials and politicians to remain in office longer if the government implements programs and projects demanded by the public. In today’s globalizing economic environments, there is increasing demand for a variety of public services and programs. However, the rate of increase in the tax revenues to finance these public services and programs falls short of the necessary public spending. The potential tax revenue of a country based on its legal or tax law is much larger than the tax revenues that are actually collected. Due to the lack of full tax compliance, government budgets are rarely balanced in most countries, and the gap between revenue and spending is increasing. The main question is why taxpayers evade taxes. To understand tax evasion, one can examine what factors cause taxpayers to evade taxes. If factors that affect tax evasion are identified, policies can be developed to prevent tax evasion. The purpose of this study is to investigate factors related to tax evasion behavior using survey data collected in Turkey. Factor analysis and multiple regression techniques are employed. The results show that taxational and fiscal factors, economic factors, demographic factors, administrative factors, and other factors have statistically significant effects on tax evasion behavior. Key words: Tax evasion; Tax compliance; Individual behavior; Factor analysis

Introduction. In current European economic system, small and medium-sized enterprises (hereinafter-SMEs) are the main source of added value (approximately 50% and 60%) and are crucial for strengthening inclusive globalization and economic growth. In developing economies, SMEs provide almost 45% of total employment, 33% of their GDP, and together with the contribution of shadow businesses, SME generate more than half of employment and GDP regardless of their income. However, one of the negative manifestations of SME activity is their participation in tax evasion schemes. Problem Statement. Determination of theoretical aspects of tax evasion, motivational prerequisites, reasons for tax evasion and forms of tax minimization in the field of small business; ranking of typical SME tax avoidance schemes in different EU countries; systematization of classic and modern forms of tax evasion in the SME sphere; analysis of sectoral features of the application of the SME tax evasion scheme through the use of fictitious employment (BSE); determination of directions for combating tax evasion in global and domestic fiscal practice. Purpose. The purpose is to study the peculiarities of tax evasion in the EU at the level of small and medium-sized enterprises, systematize and rank the most common tax evasion/optimization schemes, conduct a comparative analysis of such trends with Ukrainian practice, and develop proposals for countering tax deviations. Methods. In the research process, general scientific and special methods are used: description, analysis, synthesis, grouping, comparison, abstract-logical method and the method of theoretical generalization. Results. It is determined that the reasons for tax evasion in the SME sector often stem from psychological, mental, historical events, comparisons with other enterprises, the market situation and the approach of the company owner. It has been found that the experience of EU countries shows that SME taxation typically involves adjustments to the traditional tax technology of income taxation from entrepreneurial activity by providing certain preferences, in particular tax discounts, deductions from income, etc., as well as the application of progression in the taxation of such income. Classic and new SME tax evasion/optimization schemes exist, including the active use of BSE (bogus employment). The practical aspects of combating tax evasion/optimization in the EU through the implementation of BEPS (Base Erosion and Profit Shifting) and GAAR (General Anti-Avoidance Rules) are described. It is proved that GAAR is a concept that allows the state to deny the right of a taxpayer to receive tax benefits (advantages) from a certain transaction (series of transactions), if such transaction (series of transactions) has no other objective economic purpose than obtaining such benefits and advantages. The projection of EU tax legislation in the field of combating tax evasion in strategic domestic documents is outlined. Conclusions. Full implementation of the GAAR rule in the EU and Ukraine will significantly counteract both classic and new tax evasion/optimization schemes, including in the field of SME operation. An important component of reforming the simplified taxation system in Ukraine is establishing a transition (adaptation) period, especially in connection with the difficult situation caused by the pandemic and war.