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Tax systems to support creation and success of Small and Medium-Sized Enterprises (SMEs)

Monday, 07 September 2015   (0 Comments)
Posted by: Author: OECD
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Author: OECD

SMEs form the vast majority of businesses in most countries and contribute strongly to employment and economic growth, but they face distinct challenges, particularly as concerns access to finance and relatively high tax compliance costs. Governments have a range of policy levers -  including tax policies - that can support the growth and development of SMEs, according to a new OECD report presented to G20 finance ministers during a meeting in Ankara, Turkey. 

Taxation of SMEs in OECD and G20 Countries assesses the impact of tax policies on the creation, form and growth of SMEs in 39 OECD and G20 countries. The report analyses the role and characteristics of SMEs in the economy, the taxation of SME income, tax preferences for SMEs and simplification measures targeted at SMEs. The report finds that tax systems can influence the creation and growth of SMEs through several avenues:

  • In many countries, the taxation of SME income provides incentives for SMEs to incorporate and to distribute income in the form of capital;
  • Tax rules that apply to all businesses may disproportionately affect SMEs, particularly SMEs in their first years of operation or that are credit-constrained;
  • Tax compliance costs are proportionately higher for SMEs than for larger firms.

The study examines tax preferences and simplifications specific to SMEs that governments use to address these concerns and to foster SME growth. Based on country experiences, it recommends that such polices be carefully targeted to affected SMEs, recognising that not all SMEs face the same challenges or have the same growth potential. In introducing preferential or simplified treatment for SMEs, the report recommends that care be taken to avoid imposing additional barriers to SME growth, additional complexity, or distortions to the wider economy.

"SMEs are a significant source of employment and growth in OECD and G20 economies,” said Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration. "Careful design of tax policy, and particularly of any tax preferences or simplifications targeted to SMEs, is vital to ensure that country tax systems support SME success.”

An embeddable version of the report is available on line, together with information about downloadable and print versions of the report. 

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