The taxation of small and medium-size enterprises (SMEs) is an important topic for policy makers, as SMEs make up the vast majority of businesses and typically account for the bulk of employment in OECD countries. The OECD has just released Tax Policy Study No. 18: “Taxation of SMEs: Key Issues and Policy Considerations”, which examines a broad range of SME tax issues, including: the possible influence of taxation on SME creation, business structure and growth; arguments for and against tax incentives for SMEs; and measures to address a relatively high tax compliance burden on SMEs.
The study considers differing income tax and social security contribution burdens of unincorporated and incorporated SMEs in detail, and analyses average statutory tax rates to investigate possible tax distortions to business creation and business structure decisions of a single owner/worker of an SME.
The study presents various arguments for and against the targeting of tax incentives at SMEs. Along with traditional market failure arguments, certain basic tax provisions, with uniform application to firms of all sizes, may result in a relatively high tax burden on SMEs, possibly creating impediments to SME creation and growth. SMEs may also face a disproportionately high tax compliance cost burden compared to larger businesses, calling for adjustments to administrative approaches and/or policy to address impediments to SMEs posed by tax compliance cost considerations. The study also provides country examples of SME tax incentives and compliance cost reduction measures.
The study considers differing income tax and social security contribution burdens of unincorporated and incorporated SMEs in detail, and analyses average statutory tax rates to investigate possible tax distortions to business creation and business structure decisions of a single owner/worker of an SME.
The study presents various arguments for and against the targeting of tax incentives at SMEs. Along with traditional market failure arguments, certain basic tax provisions, with uniform application to firms of all sizes, may result in a relatively high tax burden on SMEs, possibly creating impediments to SME creation and growth. SMEs may also face a disproportionately high tax compliance cost burden compared to larger businesses, calling for adjustments to administrative approaches and/or policy to address impediments to SMEs posed by tax compliance cost considerations. The study also provides country examples of SME tax incentives and compliance cost reduction measures.
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