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Institute of Public Finance

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Tax penalties in SME tax compliance

Artur Swistak, Warsaw School of Economics, Warsaw, Poland

Small business tax compliance requires special attention. On the one hand small businesses are often incapable of rigorously fulfilling their tax obligations, more vulnerable to external risks and tempted to exploit opportunities to be non-compliant. On the other hand, unlike larger businesses, they are usually sole proprietors or owner-operated businesses, hence highly responsive to personal, social, cognitive and emotional factors. These attributes pave the way to a better use of measures designed to influence their behavior and choices. This paper discusses the role and effectiveness of tax penalties in enhancing tax compliance in small businesses. It argues that tax penalties, although indispensable for tax enforcement, may not be a first-choice tool in ensuring tax compliance. Too punitive a tax regime is an important barrier to business formalization and increasing severity of tax penalties does not produce the intended results. To be effective, tax penalties should deter and motivate taxpayers rather than exert repressive measures against them.

Keywords:  tax penalties; tax enforcement; SME’s tax compliance; SME taxation

Year:  2016   |   Volume:  40   |   Issue:  1   |   Pages:  129 - 147   

Full text (PDF)   |   DOI: 10.3326/fintp.40.1.4   |   E-mail this article   |   Download to citation manager
 March, 2016
I / 2016
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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