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Towards a simplified tax system for small businesses in transition countries
01.12.2005
With the move to a market economy the number of small businesses has grown substantially in most transition countries. However, complicated tax laws and the lack of a culture of voluntary compliance provide strong incentives to operate outside the formal economy. This article gives an overview of the development and key design features of simplified, presumptive tax systems designed to encourage the number of small businesses registered for taxation in the region. It also attempts to evaluate the effectiveness of these systems, and finds that though the numbers of businesses registered for these systems has increased, the tax revenue deriving from them is very small as a proportion of total tax revenue. Nevertheless, these results are preliminary in nature, since in many transition countries the process of developing a stable tax system and a culture of voluntary compliance has not yet been completed.