World Bank Policy Research Working Paper 10909

This paper provides novel evidence of the trade-offs policy makers face when designing simplified tax regimes for small businesses. First, it provides a comprehensive stocktaking of the main features of these regimes across Sub Saharan Africa: they are adopted by two-thirds of countries, but their design varies greatly. Second, it draws on administrative and survey data for a thorough examination of a specific simplified tax regime. This analysis shows most small businesses lack knowledge about design features, such as the existence of a minimum exemption threshold, but they react strongly to increases in tax rates by lowering their declared turnover. Finally, the paper presents the results of an experiment that encourages taxpayers to pay fixed amounts—a potential alternative design of a simplified tax regime that aims for a better balance of the trade-offs facing policy makers. The findings show that providing simple guidance about how much small businesses with similar characteristics typically pay in taxes can increase revenue, but this reduces equity among taxpayers.

Authors

Christopher Hoy

Christopher Hoy is an Economist in the Poverty and Equity Global Practice at the World Bank.

Thiago Scot

Thiago Scot is an Economist at the Development Impact Evaluation (DIME) department at the World Bank.

Alex Oguso

Alex Oguso is a Research Economist and the Head of the Research & Tax Modelling Unit at the Kenya Revenue Authority's Strategy, Innovation and Risk Management Department.

Anna Custers

Anna is an Economist at the World Bank. She focuses on fiscal policy in developing countries. In particular, on domestic resource mobilization, including both customs and tax reform, as well as the role of trust, morale, and equity in tax systems. Prior to joining the World Bank Anna worked with the Jameel Poverty Action Lab (J-PAL) in both India and France.

Daniel Zalo

Daniel Zalo is a researcher at the Kenya Revenue Authority (KRA).

Ruggero Doino

Ruggero Doino is a Research Analyst with the Public Finance Team at the World Bank's Development Impact Evaluation (DIME) unit.

Jonathan Karver

Jonathan is a Behavioral Scientist with the World Bank’s behavioral science unit (Mind, Behavior and Development, also known as eMBeD).

Nicolas Orgeira Pillai

Nicolas Orgeira is a a Doctoral Fellow with the Local Government Initiative (LoGRI), an initiative of ICTD based at the Munk School of Global Affairs and Public Policy at the University of Toronto.
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