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SMEs – SOME VAT ISSUES

SMEs – SOME VAT ISSUES. David Holmes OECD. THRESHOLDS. Most countries employ thresholds for registration or tax collection Across OECD countries: large variation Zero to US$250,000 EU variations Zero to nearly US$100,000. THRESHOLDS – GOOD.

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SMEs – SOME VAT ISSUES

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  1. SMEs – SOME VAT ISSUES David Holmes OECD

  2. THRESHOLDS • Most countries employ thresholds for registration or tax collection • Across OECD countries: large variation • Zero to US$250,000 • EU variations • Zero to nearly US$100,000

  3. THRESHOLDS – GOOD • Bulk of tax comes from a few very large businesses • Smaller businesses may be more costly to administer • Smaller businesses can be less compliant • Compliance costs for SMEs are disproportionately high

  4. THRESHOLDS – BAD • Equity – no commercial advantage to smaller businesses • Cliff-edge syndrome – one day no VAT, next day VAT • Disincentive to grow a business • Encourages avoidance (fragmenting businesses) • Impact on income tax administration

  5. THRESHOLDS – SOME THOUGHTS • Variable thresholds • goods • services • Is equity really an issue? • Allow voluntary registration • Presumptive tax schemes

  6. SMEs and COMPLIANCE • Many SMEs deal in cash trades • Audit approaches • Large businesses = system audit • Smaller businesses = system audit plus • Test through credibility checks • Build up good risk analysis tools

  7. SMEs and COMPLIANCE • Identify riskier businesses (and trades) • Test credibility • Mark-up purchases to expected sales • Cash reconciliation • Other novel approaches can be used • Most want to be compliant • Educate and support

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