MSME Taxation in Transition Economies

Abstract

The paper analyzes the design of
 simplified small business tax regimes in Eastern Europe and
 Central Asia and the impact of such regimes on small
 business tax compliance. Although many approaches for tax
 simplification exist, a general trend in the region is to
 offer small businesses the option to be taxed based on their
 turnover instead of net income. The study finds that many of
 the regimes in place are overly simplistic and neither take
 into account fairness considerations nor do they facilitate
 business growth and migration into the standard tax regime.
 Although revenue generation is not a main objective of such
 regimes, low revenue performance and the risk of system
 abuse by larger businesses should be issues of concern. More
 attention should therefore be devoted to improving the
 design of simplified regimes and monitoring their
 application. This will require in particular a more profound
 analysis of the economic situation and the tax compliance
 challenges in the small business segment and increased
 efforts to improve the quality of bookkeeping.