Tax Compliance Costs Research Articles

Effects of local fiscal policy on firm profitability

For decades, scholars and policy-makers have been interested in how fiscal policy influences entrepreneurship. Until now, research has focused on fiscal policy at the federal or regional level and used macro-economic outcome measures. Considerably less attention was given to how municipal governments can influence economic outcomes at the micro level. The present study examines the effect of municipal taxes, spending and tax compliance costs on firm profitability within the Flemish hospitality industry. This is an interesting research setting, since Flemish municipalities have far-ranging fiscal autonomy which has resulted in a proliferation of local taxes, many of which are specific to the hospitality industry. The findings reveal that local taxes have a negative impact on firm profitability, while aggregate public spending has a positive influence. The tax effect is economically relevant and exceeds the public spending impact. Finally, we find no impact of compliance costs from local taxes.

Tangled Up in Tape: The Continuing Tax Compliance Plight of the Small and Medium Enterprise Business Sector

Firms in the small and medium enterprise (SME) sector have to contend not just with the burden of tax. They also have to comply with obligations imposed by the tax system. Studies invariably show such tax compliance costs to be high and regressive. This article reports on a recent large-scale Australian study which confirm previous research and also suggests that tax compliance costs for SMEs are not diminishing over time, despite tax administrative reform and technological advances designed to reduce such costs. The outcomes of the study have significant implications for businesses in the SME sector, their advisers, administrators working with revenue authorities and policy-makers at the governmental level.

Does business regulation matter for banks in the European Union?

This paper provides a comprehensive analysis of the impact of business and financial specific regulations on banks in the EU-27 over the 2004–2010 period. We employ a dataset of a wide range of business regulation indices from the “Doing Business” project of the World Bank. Results for the credit regulation indices show that the strength of creditor rights is negatively related to bank performance as measured by cost efficiency, although this effect subdues during the recent crisis period (2008–2010). On the other hand, credit information sharing improves efficiency, a result that is further strengthened during the crisis. Tax-compliance costs and entry regulation constrain bank efficiency. More stringent regulation of labour, in terms of minimum wage and dismissal costs, and insolvency regulation are positively associated with efficiency. Furthermore, regulation that protects investors from management expropriation, such as the extent of director liability, exerts a positive impact on bank efficiency and more so in the crisis years. Finally, we use interaction terms between the business regulation variables and institutional quality as measured by the rule of law and control of corruption. Results show that there are cases that institutional quality influences the individual effects of specific types of business regulation on bank efficiency.

State income tax reciprocity agreements and small businesses

Purpose – Small businesses play a vital role in job creation and economic growth, and previous studies have noted that higher state tax rates may reduce entrepreneurial activity, growth, and hiring. The paper aims to discuss this issue. Design/methodology/approach – In this paper, the authors use a 1989-2005 panel of state-level data to explore the effects of state income tax reciprocity agreements on several measures of small business activity. Since a reciprocity agreement exempts non-resident income from a state's personal income tax base, it has the potential to reduce barriers to entrepreneurial activity and lower tax compliance costs. Findings – The results indicate that reciprocity agreements appear to have reduced the tax-rate sensitivity of entrepreneurial activity, which may lead to more small business and entrepreneurial activity in states with more active agreements, other factors constant. This suggests that personal income tax reciprocity agreements may be a credible policy tool to expand small business activity. Originality/value – In this study, the paper sets out to determine if small business and entrepreneurial activity is greater in states that have reciprocity agreements and if such activity is dependent on the number of active agreements in place. Given recent nationwide efforts to ease compliance costs for business through other initiatives such as the Telecommuter Tax Fairness Act and the Streamlined Sales Tax Agreement, this study is the first to quantify how decreasing tax compliance and eliminating barriers to labor mobility affects small business activity. The results therefore have the potential to help shape debates in many states today.

A Relationship between Tax Compliance Cost, Tax Avoidance, and Tax Fairness

A Relationship between Tax Compliance Cost, Tax Avoidance, and Tax Fairness

A Study on the Influence of Tax Complexity on Tax Compliance Cost

A Study on the Influence of Tax Complexity on Tax Compliance Cost

Tax Compliance Costs: A Review of Cost Burdens and Cost Structures

Our paper provides a comprehensive report of empirical research on tax compliance costs. Comparedto previous reviews, our focus is on average costs for sub-groups (individual taxpayers, small business-es, large businesses) and the composition of the cost burden with regards to different cost components(in-house time effort, external adviser costs, other monetary expenses), different taxes (e.g. income tax,value added tax) and different activities like tax accounting and tax planning. In addition, we give ashort review of the most important compliance cost drivers and discuss the underlying causes of taxcomplexity and compliance costs.

Tax Compliance Costs: Selected Post-transitional Countries and the Czech Republic

The paper presents the tax compliance costs (TCC) measurements in the Czech Republic, Slovakia, Slovenia and Croatia during the last decade and discusses methods and results of different studies. The authors also present their results of the Czech TCC measurements in 2004 and 2008 for the VAT, corporate income tax, personal income tax of employees and self-employed. The paper uses the econometric analysis to shows which factors affect the size of the TCC at tax payer's level and analyses how the tax payer's size and other factors influence the relative volume of TCC.

INCOME TAXES AND COMPLIANCE COSTS: HOW ARE THEY RELATED?

This paper examines the relationship between tax complexity and income tax compliance costs through the development and use of econometric models based on a mix of survey and tax administration dat...

Personal Taxpayer Compliance Costs: Recent Evidence from Australia

This article reports on the tax compliance burden of Australian personal (non-business) taxpayers in the 2011-12 tax year. A survey of just over 4,000 individuals was conducted in late 2012 and average tax compliance costs were derived from the data and combined with macro-statistics to generate aggregate personal taxpayer compliance costs. The study demonstrates that personal taxpayer compliance costs have grown by about 73 per cent since 1995 and suggests that various technologically driven simplification initiatives undertaken by the government (such as e-tax and pre-filled income tax returns) have not been sufficient to slow down this growth in personal tax compliance costs.

Addressing the small business tax compliance burden: Evidence from South Africa

Small businesses have the potential to grow the economy, generate jobs and reduce poverty, but they face many constraints including high tax compliance costs and burdens. A comparison of the findings and recommendations made in small business tax compliance cost studies conducted in South Africa with initiatives introduced by the South African Revenue Service (SARS), substantiated by consultations with a SARS and a South African Institute of Chartered Accountants official, reveals that SARS has, in most cases, attempted to address the tax compliance burdens identified in these studies. However, SARS has only partially addressed the complexity of the tax law, the lack of software to assist small businesses with their record-keeping and the compliance burden associated with provisional tax. SARS has failed to address the need for a threshold below which no small business tax return is required to be submitted, the inclusion of tax in the school syllabus, the requirement for first-time offenders to attend courses instead of raising penalties and the need for a reduction in the rates of interest and penalties raised by SARS. These initiatives should be considered by SARS and it is recommended that further research into the success and effectiveness of all the initiatives already introduced by SARS be performed.

Model oporezivanja malih preduzeća u sistemu PDV-a na bazi koncepta gotovinskog računovodstva

Standard model of VAT includes a calculation of VAT liability on a basis of issued invoices. Since 1 January 2013, aiming at simplification of tax administering, reduction of tax compliance costs and improvement of liquidity of small and medium enterprises (SMEs), the European Union has applied a cash accounting concept for VAT purpose. Taking into account the initiatives on introduction of cash accounting in the VAT system in Bosnia and Herzegovina, as a measure for combating with the global economic and financial crisis, the goal of the article is to present benefits and drawbacks of the apllication of cash accounting concept in VAT system, based on analysis of the EU legal framework and experiences of the member states, indicating possible alternative solutions.

Income Tax Compliance Costs of Working Individuals

We analyze the compliance costs of individual taxpayers resulting from the German income tax (tax year 2007). Using survey data that have been raised between December 2008 and April 2009, we find evidence for a considerably higher cost burden of self-employed taxpayers. Taxable income and a higher education (university degree) are positively correlated with compliance costs, while the time effort of female taxpayers is significantly lower. By contrast, joint filing of married couples reduces the burden of tax compliance. The aggregate cost estimate of German income taxpayers amounts to €6 to €9 billion, respectively, 3.1 to 4.7 percent of the income tax revenue in 2007. This estimate is higher than latest projections in a number of other European countries like Spain and Sweden, but lower than estimates for the United States and Australia.

The Hidden Costs of Tax Compliance

Lawmakers have long used the tax code for purposes far beyond simply collecting revenue to fund the federal government. Through the insertion of specialized tax provisions, the tax code is used to achieve policy and political aims as well. But these special provisions come at a price: economic growth is foregone, higher accounting costs are incurred, more lobbyists are hired to protect tax advantages, and revenue is lost as a result of collection inefficiencies. We estimate that hidden costs of tax compliance range from $215 billion to $987 billion annually, and that part of the $452 billion revenue gap in 2012 unreported taxes was the result of tax code complexity. We provide policy recommendations based on lessons from the Russia flat tax reforms and the Tax Reform Act of 1986.

Addressing the small business tax compliance burden: Evidence from South Africa

Small businesses have the potential to grow the economy, generate jobs and reduce poverty, but they face many constraints including high tax compliance costs and burdens. A comparison of the findings and recommendations made in small business tax compliance cost studies conducted in South Africa with initiatives introduced by the South African Revenue Service (SARS), substantiated by consultations with a SARS and a South African Institute of Chartered Accountants official, reveals that SARS has, in most cases, attempted to address the tax compliance burdens identified in these studies. However, SARS has only partially addressed the complexity of the tax law, the lack of software to assist small businesses with their record-keeping and the compliance burden associated with provisional tax. SARS has failed to address the need for a threshold below which no small business tax return is required to be submitted, the inclusion of tax in the school syllabus, the requirement for first-time offenders to attend courses instead of raising penalties and the need for a reduction in the rates of interest and penalties raised by SARS. These initiatives should be considered by SARS and it is recommended that further research into the success and effectiveness of all the initiatives already introduced by SARS be performed.

Small business entity tax concessions: Through the eyes of the practitioner

Australia’s small business sector has pursued often-competing imperatives of simplicity, equity and efficiency in the income tax regime (particularly focusing on the notion of simplicity) over the last decade. In 2001, there was an attempt to provide such simplification and reduce the compliance burden faced by Australian small businesses through the ‘simplified tax system’ (‘STS’). However, despite amendments over the years, the regime is much criticised. This article explores how the STS (now known as the ‘small business entity’ regime or ‘SBE’) is utilised from the perspective of tax practitioners, by analysing their recommendations to small business clients in respect of the regime. The results indicate that practitioners believe the regime did nothing to simplify the tax system for small businesses or reduce tax compliance costs. Indeed, the practitioners believed that the introduction of small business concessions had actually achieved the opposite result — it had increased tax compliance costs for their small business clients. However, tax practitioners still recommend the regime highly because it minimises their client’s tax liability.

Corporate Tax Administration in Malaysia: Managing and Improving Compliance

These tax administration and compliance incur significant costs respectively to the authority and taxpayers. Administrative costs are more complicated to be theorised due to their discontinuity and parallel directions with tax rates. Compliance costs, on the other hand, have been hypothesised to be positively associated with complexities, reliance on tax agents, SAS and pace of change in tax system. This explains the rise of tax compliance cost as a consequence of complicated tax systems or policy. By analysing the data hand-collected from IRBM’s (Inland Revenue Board of Malaysia) annual reports, this study draws inferences about the parallel relationship between administration costs and tax revenue. This study also finds little evidence on tax collection incremental effects of IRBM’s visit events. These findings motivate future studies to investigate the institutional determinants of the effectiveness of tax administration. From the authority context, in addition to the existing risk measurements, the IRBM should further assess the potential noncompliance of firms based on firm-specific characteristics and firm corporate governance conduct.

A critical analysis of the barriers to entry for small business owners imposed by Sections 12E(4)(a)(iii) and (d) and paragraph 3(b) of the Sixth Schedule Of The Income Tax Act, No. 58 of 1962

According to National Treasury’s Explanatory Memorandum on the Revenue Laws Amendment Bill, 2008, small businesses in South Africa are instrumental in the growth of the South African economy as they are a source of job creation and a counter to poverty. Research, however, indicates that small businesses face many obstacles, such as relatively high tax compliance costs. It was, therefore, proposed in the 2008 Budget Review that a turnover tax system be implemented for micro businesses with a turnover of up to R1 million per annum to simplify the tax compliance process. Similarly, section 12E was introduced earlier in the Income Tax Act No. 58 of 1962 to offer additional income tax relief to small business owners. Sections 12E(4)(a)(iii) and (d) and paragraph 3(b) of the Sixth Schedule, however, prevent certain small business owners from making use of these concessions. This article investigates these barriers to entry and explores possible solutions to the problems presented by them.

Annual tax compliance costs for small businesses: a survey of tax practitioners in South Africa

This study provides a baseline measurement for annual tax compliance costs for small businesses. An empirical study performed amongst tax practitioners to identify and measure the annual tax compliance costs for small businesses throughout South Africa revealed that R7 030 per annum is the average fee that tax practitioners charge their small business clients to ensure that their tax returns (for four key taxes – income tax, provisional tax, value added tax and employees’ tax) are prepared, completed and submitted as SARS requires. From the perspective of time and cost, preparing, completing and submitting VAT returns takes the longest and costs the most. It is evident that, overall, the compliance costs are regressive: the smaller the business, the heavier the burden.

A Common Corporate Tax Base for Europe: An Impact Assessment of the Draft Council Directive on a CC(C)TB

After intensive and extensive preparation, the European Commission released the long-awaited proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) on 16 March 2011. In the context of the Europe 2020 Strategy, major objectives of the proposed CCCTB are the elimination of transfer pricing concerns, the removal of double taxation due to conflicting tax claims between Member States and, of course, the reduction of tax compliance costs. However, as the second and the third step of the proposed CCCTB, i.e. the consolidation and the allocation mechanism, still suffer from considerable shortcomings, we recommend introducing the CCCTB in two steps. In this context, our paper focuses on the first step of a CCCTB, i.e. the common corporate tax base (CCTB). The paper combines qualitative and quantitative analyses on the key differences and similarities between the proposed CCTB and current tax accounting practice in all 27 Member States, Switzerland and the United States It offers not only a broad geographical scope, but also great detail in analysing the differences in tax accounting and quantifying the change in tax burden induced by the introduction of a CCTB in each Member State, Switzerland and the United States.