The Taxation of Micro and Small Businesses in Transition Economies: Country Experience of the Introduction of Special Tax Regimes

Michael Engelschalk, Jan Loeprick


This 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. While there are many options for tax simplification, the general trend in the region is to offer small businesses the option to be taxed based on their turnover rather than net income. This study finds that many of the regimes in place are not well targeted, and neither take into account fairness considerations nor facilitate business growth and migration to the standard tax regime. While revenue generation is not a main objective of such regimes, the extremely 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 facing the small business segment, and increased efforts to improve the quality of bookkeeping.

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