Taxation for SMEs: a regime for the 80% of taxpayers who pay 2% by Alberto Barreix and Darío González publicado por CIAT (9/2020).
“Small individual taxpayers, micro and small enterprises (SMEs)have always been , have always been a factor of concern among tax policy makers. On one hand, since they constitute the largest universe of taxpayers (60 to 96% depending on the country), on the other their importance in the collection in the region is very small (0.1 to 3.9%). In this blog we propose a special tax regime for SMEs after the pandemic.
These taxpayers are, in many cases, in the subsistence economy, where informality is the dominant factor, with scarce social security coverage, with reduced administrative capacity and their operations are mostly cash-based. The challenge for tax administrations in Latin America and the Caribbean is to ensure that these taxpayers fulfill their obligations while keeping the costs of tax compliance and control at affordable levels, so as to stimulate productivity and formalization. Small and micro enterprises (SMEs) usually are the largest employer in our countries and dynamic factor in the economy; however, they suffer from a high mortality rate and a low productivity so that the vast majority of SMEs remain stagnant.
To solve this challenge, the region has tried different solutions.
Since the 1970s, the strategy has been to create simplified Value Added Tax (VAT) regimes. Given the failure of this approach, the 1990s saw the emergence of a more comprehensive strategy, which combined income tax (IT) and Social Security contributions (SSC) (mainly pensions and health services) to promote economic and social inclusion, but also to help strengthen the weak controls in place…”
