To what extent do existing tax institutions and procedures minimize compliance and collection costs?
The tax system is fully aligned with the goal of minimizing compliance and collection costs.
10
Estonia
Estonia has implemented two key strategies to minimize compliance and collection costs effectively. First, it employs a simple tax system with few exemptions or tax brackets. Second, it has established a well-developed digitalization of tax and customs declarations.
As the first public e-service, eMTA – the online tax declaration service – is regularly updated and highly popular among citizens and enterprises. By 2021, 97% of income declarations were filed using the digital eMTA system. Based on available financial data, the eMTA pre-fills declarations for individuals, making the process fast and easy for citizens. Various authentication methods are available including via ID card (including digital ID, residence permit card, e-Resident digital ID, and diplomatic card), mobile IDs, Smart IDs and EU e-IDs.
As the first public e-service, eMTA – the online tax declaration service – is regularly updated and highly popular among citizens and enterprises. By 2021, 97% of income declarations were filed using the digital eMTA system. Based on available financial data, the eMTA pre-fills declarations for individuals, making the process fast and easy for citizens. Various authentication methods are available including via ID card (including digital ID, residence permit card, e-Resident digital ID, and diplomatic card), mobile IDs, Smart IDs and EU e-IDs.
9
Finland
Tax administration in Finland has been at the forefront of digitalization. The Vero.fi Tax Administration website and MyTax e-service are the primary points of entry for information and interactions regarding tax issues for individuals and companies. It is currently possible to file tax reports online. Moreover, the tax authorities send a suggested report, and if individuals liable to pay taxes are satisfied with the suggestion, they do not need to take any further action.
Finland has also updated its income register through the tax authorities. The register includes up-to-date information on all payments for various stakeholders, including the tax authorities and social security funds.
Tax rules are transparent and easily understandable. The tax authorities have minimized compliance costs for taxpayers. These rules promote transparency and comprehensibility, reducing administrative collection costs for tax institutions and avoiding expensive tax litigation.
Finland has also updated its income register through the tax authorities. The register includes up-to-date information on all payments for various stakeholders, including the tax authorities and social security funds.
Tax rules are transparent and easily understandable. The tax authorities have minimized compliance costs for taxpayers. These rules promote transparency and comprehensibility, reducing administrative collection costs for tax institutions and avoiding expensive tax litigation.
Citations:
Vero.fi: Tax Administration. https://www.vero.fi/en/individuals/
MyTax. https://www.vero.fi/en/e-file/mytax/
Vero.fi: Tax Administration. https://www.vero.fi/en/individuals/
MyTax. https://www.vero.fi/en/e-file/mytax/
Israel
Israeli employees do not have to file a tax report, which increases compliance and reduces administrative costs. Employers report their income annually. An employee working for more than one employer has to file a request for tax coordination. In recent years, this request can be filed online via the tax authority website. Individuals receive the necessary form electronically and immediately, which further increases compliance.
Self-employed individuals must submit an annual tax report. To do so, many use accountancy services. In general, tax regulations are accessible and well explained on the tax authority website, and the tax authority has branches in many localities.
Lastly, each Israeli citizen can access their personal files from and track the progress of various requests with the tax authority.
Self-employed individuals must submit an annual tax report. To do so, many use accountancy services. In general, tax regulations are accessible and well explained on the tax authority website, and the tax authority has branches in many localities.
Lastly, each Israeli citizen can access their personal files from and track the progress of various requests with the tax authority.
New Zealand
New Zealand has designed its tax institutions and procedures with an emphasis on simplicity and efficiency, aiming to minimize compliance and collection costs for both taxpayers and the government. Taxpayers whose tax is deducted from their wage, salary, benefit or scheduler payment automatically are not required to file an annual return, and any refund is automatically returned (IRD 2023a). Additionally, there are very few exemptions on New Zealand’s Goods and Services Tax (IRD 2023b). Both of these mechanisms reduce the state’s administrative burden.
Independent reviews often laud New Zealand for its transparent and easy-to-understand tax system. For example, the International Tax Competitiveness Index – published by the conservative Tax Foundation think tank – ranks New Zealand third in terms of “tax competitiveness,” ahead of international financial centers such as Switzerland and Luxembourg (Tax Foundation 2023). In PwC’s 2020 Paying Taxes Index, which measures how easy it is for companies to discharge their tax obligations in a given jurisdiction, New Zealand was placed ninth out of 189 territories, ahead of all other OECD member countries except Denmark and Ireland (PwC 2020). New Zealand was also ranked ninth on the “paying taxes” measure in the World Bank’s Business Index (World Bank 2020).
Independent reviews often laud New Zealand for its transparent and easy-to-understand tax system. For example, the International Tax Competitiveness Index – published by the conservative Tax Foundation think tank – ranks New Zealand third in terms of “tax competitiveness,” ahead of international financial centers such as Switzerland and Luxembourg (Tax Foundation 2023). In PwC’s 2020 Paying Taxes Index, which measures how easy it is for companies to discharge their tax obligations in a given jurisdiction, New Zealand was placed ninth out of 189 territories, ahead of all other OECD member countries except Denmark and Ireland (PwC 2020). New Zealand was also ranked ninth on the “paying taxes” measure in the World Bank’s Business Index (World Bank 2020).
Citations:
IRD. 2023a. “Getting a Tax Refund.” https://www.govt.nz/browse/tax-benefits-and-finance/tax/getting-a-tax-refund
IRD. 2023b. “Charging GST.” https://www.ird.govt.nz/gst/charging-gst/exempt-supplies
PwC. 2020. “Paying Taxes 2020.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes2020.html
Tax Foundation. 2023. “International Tax Competitiveness Index.” https://taxfoundation.org/wp-content/uploads/2023/10/TF-ITCI23-Book_16-10_FV.pdf
World Bank. 2020. “Doing Business 2020: New Zealand.” https://www.doingbusiness.org/content/dam/doingBusiness/country/n/new-zealand/NZL.pdf
IRD. 2023a. “Getting a Tax Refund.” https://www.govt.nz/browse/tax-benefits-and-finance/tax/getting-a-tax-refund
IRD. 2023b. “Charging GST.” https://www.ird.govt.nz/gst/charging-gst/exempt-supplies
PwC. 2020. “Paying Taxes 2020.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes2020.html
Tax Foundation. 2023. “International Tax Competitiveness Index.” https://taxfoundation.org/wp-content/uploads/2023/10/TF-ITCI23-Book_16-10_FV.pdf
World Bank. 2020. “Doing Business 2020: New Zealand.” https://www.doingbusiness.org/content/dam/doingBusiness/country/n/new-zealand/NZL.pdf
Switzerland
Apart from flat tax regulations (in the canton of Obwalden), tax rules are considered difficult by many taxpayers. Arguably, comparing German and Swiss rules, Swiss rules may in general be more transparent and comprehensible, and tax forms are relatively easy to fill out without the support of a tax counselor. This conclusion is confirmed by indicators such as the “ease of paying taxes” by the World Bank. For example, taxpayers are calculated to have spent 15 hours doing corporate income taxes in 2020, 40 hours for labor taxation and eight hours for VAT – compare this with a respective 41 hours, 134 hours and 43 hours in Germany (pwc n.d.).
Citations:
pwc. n.d. “Interactive tax data explorer.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020/explorer-tool.html
pwc. n.d. “Interactive tax data explorer.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020/explorer-tool.html
The tax system is largely aligned with the goal of minimizing compliance and collection costs.
8
Denmark
For the average person, the tax system is straightforward, requiring minimal individual action. Various controls ensure the accuracy of tax records, relying largely on the automatic registration of most economic flows.
However, the tax system is complex, making it difficult for individuals to understand all its rules and regulations. This raises both a democratic issue regarding citizens’ ability to comprehend the system and concerns related to behavioral responses to incentives that are imperfectly understood. Despite recent difficulties with tax collection and the system’s complex nature, it still maintains a high degree of legitimacy.
Taxation of companies is also complex, and employer organizations representing Danish companies and industry have consistently argued that the tax code should be simplified (Danish Industry 2023). While the costs of developing new IT systems to collect debt and to collect new housing taxes have been somewhat unsuccessful, the Danish tax system is generally perceived as effective.
However, the tax system is complex, making it difficult for individuals to understand all its rules and regulations. This raises both a democratic issue regarding citizens’ ability to comprehend the system and concerns related to behavioral responses to incentives that are imperfectly understood. Despite recent difficulties with tax collection and the system’s complex nature, it still maintains a high degree of legitimacy.
Taxation of companies is also complex, and employer organizations representing Danish companies and industry have consistently argued that the tax code should be simplified (Danish Industry 2023). While the costs of developing new IT systems to collect debt and to collect new housing taxes have been somewhat unsuccessful, the Danish tax system is generally perceived as effective.
Citations:
Danish Industry. 2023. “60+ skridt mod et simplere skattesystem.” https://www.danskindustri.dk/globalassets/billedarkiv/kampagnesites/simpel-skat/skattekatalog/simplificering-af-skattesytemet-2022–1-nov.pdf?v=240120
Danish Industry. 2023. “60+ skridt mod et simplere skattesystem.” https://www.danskindustri.dk/globalassets/billedarkiv/kampagnesites/simpel-skat/skattekatalog/simplificering-af-skattesytemet-2022–1-nov.pdf?v=240120
Ireland
Irish revenue administrative capacities are well-regarded and sufficient for collecting levied taxes, with effective public prosecution of tax evasion. However, there is a public perception that company-level tax evasion is less frequently prosecuted and that tax avoidance is facilitated. The tax system is efficient, well-digitalized and aligned with the goal of minimizing compliance costs.
However, the Tax Justice Network reports that Ireland loses $13,589,860,352 annually to global tax abuse, equivalent to 19% of its tax revenue ($72 billion) or $2,792 per capita. This places Ireland 11th worst in the world for tax loss. Tax administration capacity in Ireland is rated at 25, which is low compared to the global average of 47 (Tax Justice Network 2021). This is largely due to the facilitation of tax avoidance, though domestic tax administration scores highly for non-complexity.
While tax rules for basic income tax are relatively transparent and easy to understand, minimizing compliance costs for taxpayers (such as form filling and consulting fees), corporate tax rules are less transparent. Ireland has been accused of engaging in “tax games,” leading to high-profile legal battles with the EU and costly tax litigation.
However, the Tax Justice Network reports that Ireland loses $13,589,860,352 annually to global tax abuse, equivalent to 19% of its tax revenue ($72 billion) or $2,792 per capita. This places Ireland 11th worst in the world for tax loss. Tax administration capacity in Ireland is rated at 25, which is low compared to the global average of 47 (Tax Justice Network 2021). This is largely due to the facilitation of tax avoidance, though domestic tax administration scores highly for non-complexity.
While tax rules for basic income tax are relatively transparent and easy to understand, minimizing compliance costs for taxpayers (such as form filling and consulting fees), corporate tax rules are less transparent. Ireland has been accused of engaging in “tax games,” leading to high-profile legal battles with the EU and costly tax litigation.
Citations:
Tax Justice Network. 2021. “Corporate Tax Haven Index-2021 Results.” https://taxjustice.net/country-profiles/ireland/
Tax Justice Network. 2021. “Corporate Tax Haven Index-2021 Results.” https://taxjustice.net/country-profiles/ireland/
Lithuania
The tax system is largely aligned with the goal of minimizing compliance and collection costs. The use of the electronic system of tax declaration and payments has contributed to making tax compliance easier for taxpayers. The culture of the State Tax Inspection has also evolved into a focus on assisting taxpayers rather than focusing on sanctions. However, the existence of different types of tax treatments by entity type and size, type of activity, and sources of income (capital/labor) makes tax compliance more costly.
Norway
The collection of taxes is fully automated and integrated with the collection of social security contributions. For most wage earners and the self-employed, the tax rules are perceived as relatively simple and easy to comply with. However, even though compliance is easy because of the high degree of automation, the rules themselves are complex, and the burden of proof largely falls on the taxpayer when automated reporting requires adjustment. This process remains very transparent, and it is easy to communicate with the Tax Administration in such cases.
Sweden
A significant tax reform in Sweden in the early 1990s simplified taxes and reduced both deductible items and tax rates. Since then, two commissions of inquiry and a recent report have advocated for another large-scale tax reform, although none has been implemented so far. The report argues that the current system is overly complex, contains too many exceptions, and imposes high marginal taxes (Eklund, 2021; see also Jämställdhetsmyndigheten, 2022). Generally, taxpayers can easily file returns electronically through the Swedish Tax Agency’s digital services.
Citations:
Eklund, Klas. 2021. Vårt framtida skattesystem – en ESO rapport med försläg på en genomgripande skattereform. https://eso.expertgrupp.se/wp-content/uploads/2020/11/2020_7-vårt-framtida-skattesystem-webb.pdf
Jämställdhetsmyndigheten. 2022. “Kunskapsunderlag om frågor som rör skatter och jämställdhet.” https://jamstalldhetsmyndigheten.se/media/xr5fihnu/underlagsrapport-2023-2-skatter-och-jämställdhet.pdf
Eklund, Klas. 2021. Vårt framtida skattesystem – en ESO rapport med försläg på en genomgripande skattereform. https://eso.expertgrupp.se/wp-content/uploads/2020/11/2020_7-vårt-framtida-skattesystem-webb.pdf
Jämställdhetsmyndigheten. 2022. “Kunskapsunderlag om frågor som rör skatter och jämställdhet.” https://jamstalldhetsmyndigheten.se/media/xr5fihnu/underlagsrapport-2023-2-skatter-och-jämställdhet.pdf
7
Australia
Despite the considerable complexity of the income tax system, compliance costs are relatively low for most taxpayers due to the use of electronic filing, with income from most sources, including wages and salaries, interest, and dividends, now pre-populated. However, 70% of tax returns are still lodged by a tax agent, likely due to the range of available deductions and the difficulty for ordinary people to determine their entitled deductions.
There have also been concerns about compliance and transparency in the Australian tax system. The Tax Justice Network (2023) estimates that approximately AUD 3.8 billion is lost in tax revenue every year due to tax abuse by corporations and individuals, equating to 0.9% of the country’s tax revenue (or AUD 152 per capita of the Australian population).
The Australian government recently passed a law to improve corporate tax transparency and compliance (Leigh 2023). Its measures include stronger rules requiring corporations to reveal where their assets and activities are domiciled for taxation purposes and greater alignment between corporations’ activities and tax obligations.
In sum, while general levels of compliance are high, leakages are not trivial.
There have also been concerns about compliance and transparency in the Australian tax system. The Tax Justice Network (2023) estimates that approximately AUD 3.8 billion is lost in tax revenue every year due to tax abuse by corporations and individuals, equating to 0.9% of the country’s tax revenue (or AUD 152 per capita of the Australian population).
The Australian government recently passed a law to improve corporate tax transparency and compliance (Leigh 2023). Its measures include stronger rules requiring corporations to reveal where their assets and activities are domiciled for taxation purposes and greater alignment between corporations’ activities and tax obligations.
In sum, while general levels of compliance are high, leakages are not trivial.
Citations:
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
Leigh, A. 2023. “Making multinationals pay their fair share – Integrity and Transparency Bill.” https://www.andrewleigh.com/making_multinationals_pay_their_fair_share_integrity_and_transparency_bill_2023
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
Leigh, A. 2023. “Making multinationals pay their fair share – Integrity and Transparency Bill.” https://www.andrewleigh.com/making_multinationals_pay_their_fair_share_integrity_and_transparency_bill_2023
Austria
The Austrian tax system is comparatively complex but has become slightly easier to navigate over time. As always, complexity benefits high-income individuals or firms more than low-income individuals, and in the former case, relying on tax consultants is common practice.
In a World Bank survey on the ease of paying taxes indicator, Austria ranks 19th out of 30 countries, though its score has improved significantly over the past decades. According to a study by PwC (n.d.) for 2020, taxpayers spent 46 hours on corporate income taxes, 50 hours on labor taxation, and 35 hours on VAT. In comparison, taxpayers in Germany spent 41, 134, and 43 hours, respectively, while those in Switzerland spent 15, 40, and 8 hours, respectively.
In another cross-country comparison by the European Parliament focusing on tax compliance costs for businesses in absolute values, Austria ranked slightly below the European average.
On the two specific questions of whether “fast-changing legislation and policies are a problem when doing business” and whether “the complexity of administrative procedures is a problem when doing business,” Austria ranked slightly below the European average. This suggests the existence of a fairly workable regime in place.
In a World Bank survey on the ease of paying taxes indicator, Austria ranks 19th out of 30 countries, though its score has improved significantly over the past decades. According to a study by PwC (n.d.) for 2020, taxpayers spent 46 hours on corporate income taxes, 50 hours on labor taxation, and 35 hours on VAT. In comparison, taxpayers in Germany spent 41, 134, and 43 hours, respectively, while those in Switzerland spent 15, 40, and 8 hours, respectively.
In another cross-country comparison by the European Parliament focusing on tax compliance costs for businesses in absolute values, Austria ranked slightly below the European average.
On the two specific questions of whether “fast-changing legislation and policies are a problem when doing business” and whether “the complexity of administrative procedures is a problem when doing business,” Austria ranked slightly below the European average. This suggests the existence of a fairly workable regime in place.
Citations:
https://www.europarl.europa.eu/RegData/etudes/STUD/2023/642353/IPOL_STU(2023)642353_EN.pdf
https://www.bmf.gv.at/en/the-ministry/internal-organisation/Tax-Authority-Austria.html
https://www.rydoo.com/compliance/austria/austrian-paperless/
pwc. n.d. “Interactive tax data explorer.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020/explorer-tool.html
https://www.europarl.europa.eu/RegData/etudes/STUD/2023/642353/IPOL_STU(2023)642353_EN.pdf
https://www.bmf.gv.at/en/the-ministry/internal-organisation/Tax-Authority-Austria.html
https://www.rydoo.com/compliance/austria/austrian-paperless/
pwc. n.d. “Interactive tax data explorer.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020/explorer-tool.html
Canada
The tax rules in Canada are very complex, especially for high-income earners and large companies. Although low earners and small businesses benefit from a simplified system, the complexity of Canada’s tax regulations undermines transparency and increases administrative costs for taxpayers.
Frequent changes from year to year make it difficult for average taxpayers to understand the tax implications of different behaviors and plan accordingly. Opaque technical language around deductions and income categories reduces clarity. The general lack of easily accessible summaries of rules for average taxpayers hinders transparency and drives up taxpayer costs.
As a result, large numbers of Canadian taxpayers rely on professional help, paying billions annually in fees. Many millions of hours are spent annually by individuals completing complex return forms. This complexity also drives administrative and litigation costs, as the Canada Revenue Agency (CRA) audits more than 350,000 files each year. Ultimately, Canada has one of the highest tax dispute rates among OECD countries due to lack of clarity in rules and audit results.
Frequent changes from year to year make it difficult for average taxpayers to understand the tax implications of different behaviors and plan accordingly. Opaque technical language around deductions and income categories reduces clarity. The general lack of easily accessible summaries of rules for average taxpayers hinders transparency and drives up taxpayer costs.
As a result, large numbers of Canadian taxpayers rely on professional help, paying billions annually in fees. Many millions of hours are spent annually by individuals completing complex return forms. This complexity also drives administrative and litigation costs, as the Canada Revenue Agency (CRA) audits more than 350,000 files each year. Ultimately, Canada has one of the highest tax dispute rates among OECD countries due to lack of clarity in rules and audit results.
Citations:
https://taxpage.com/tax-audit-assistance/#:~:text=There%20are%20over%20350%2C000%20audit,35%2C000%20are%20tax%20shelter%20audits.&text=CRA%20may%20choose%20to%20audit%20a%20taxpayer%20for%20several%20reasons.
https://taxpage.com/tax-audit-assistance/#:~:text=There%20are%20over%20350%2C000%20audit,35%2C000%20are%20tax%20shelter%20audits.&text=CRA%20may%20choose%20to%20audit%20a%20taxpayer%20for%20several%20reasons.
Czechia
The Czech tax system is rather complicated and has accumulated several exceptions over the years. Complaints about its complexity and the administrative burden have been strongest from small business owners. In 2022, a system was introduced to alleviate this burden, allowing these owners to make a single payment covering both income tax and compulsory insurance contributions. Under this system, following a single declaration, the payment remains constant even if their incomes vary month to month. Although this system was initially welcomed as a good idea, survey evidence suggested that only 7% of small business owners used it in its first year, rising to 10% in 2023. The main reason for the low uptake was that it did not offer significant benefits, suggesting that the existing system was not too complicated to pose serious problems for many.
The tax administration has been accused of being overly rigid, failing to distinguish between mistakes and attempts to defraud. A significant number of cases end up in court, indicating that the cost of litigation is not prohibitive for everyone. Several law firms offer to take up these cases, with costs equivalent to at least ten times the average wage in terms of hours of a lawyer’s time.
The tax administration has been accused of being overly rigid, failing to distinguish between mistakes and attempts to defraud. A significant number of cases end up in court, indicating that the cost of litigation is not prohibitive for everyone. Several law firms offer to take up these cases, with costs equivalent to at least ten times the average wage in terms of hours of a lawyer’s time.
Citations:
https://www.financnisprava.cz/assets/cs/prilohy/fs-financni-sprava-cr/Vyrocni_zprava_o_cinnosti_FS_CR_za_rok_2022.pdf
https://www.businessinfo.cz/clanky/pausalni-dan-vyuziva-jen-deset-procent-osvc-jake-jsou-duvody/
https://www.financnisprava.cz/assets/cs/prilohy/fs-financni-sprava-cr/Vyrocni_zprava_o_cinnosti_FS_CR_za_rok_2022.pdf
https://www.businessinfo.cz/clanky/pausalni-dan-vyuziva-jen-deset-procent-osvc-jake-jsou-duvody/
France
The tax system is transparent in principle but complex in practice.
Forms are usually simple in the most straightforward cases. Digitalization of most functions has even made partially automatic completion of various forms possible, starting with the income tax form. However, such automation is far from systematic. Numerous specific cases and exemptions make it difficult for people to understand forms, and facilitate optimization strategies. People who are not accustomed to working with computers, a group which constitutes a significant section of the population, often find the digitalized functions difficult to use. A number of practical guides exist in these markets, as well as various consulting services. For private individuals, only a small minority of generally high income earners has to use this type of service. As the tax system also involves refunds, the fact that people do not claim what they are entitled to is significant.
For firms, the use of specialized internal and external services is almost mandatory. This is a specific burden for small companies, whereas bigger ones tend to have a streamlined process.
According to a calculation by PwC (n.d.) for 2020, taxpayers spent an average of 28 hours on corporate income taxes, 80 hours on labor taxation and 31 hours on VAT. The corresponding totals in Germany were 41 hours, 134 hours and 43 hours, and in Switzerland were 15 hours, 40 hours and eight hours.
Tax institutions represent a sizable state expense, estimated at more than $5 billion in 2016 (Court of Accounts 2016). The Court of Accounts has argued that substantial reform is needed to increase the overall efficiency of the tax collection system. Simplification seems the best strategy. Specific litigation on tax issues does not seem problematic.
Forms are usually simple in the most straightforward cases. Digitalization of most functions has even made partially automatic completion of various forms possible, starting with the income tax form. However, such automation is far from systematic. Numerous specific cases and exemptions make it difficult for people to understand forms, and facilitate optimization strategies. People who are not accustomed to working with computers, a group which constitutes a significant section of the population, often find the digitalized functions difficult to use. A number of practical guides exist in these markets, as well as various consulting services. For private individuals, only a small minority of generally high income earners has to use this type of service. As the tax system also involves refunds, the fact that people do not claim what they are entitled to is significant.
For firms, the use of specialized internal and external services is almost mandatory. This is a specific burden for small companies, whereas bigger ones tend to have a streamlined process.
According to a calculation by PwC (n.d.) for 2020, taxpayers spent an average of 28 hours on corporate income taxes, 80 hours on labor taxation and 31 hours on VAT. The corresponding totals in Germany were 41 hours, 134 hours and 43 hours, and in Switzerland were 15 hours, 40 hours and eight hours.
Tax institutions represent a sizable state expense, estimated at more than $5 billion in 2016 (Court of Accounts 2016). The Court of Accounts has argued that substantial reform is needed to increase the overall efficiency of the tax collection system. Simplification seems the best strategy. Specific litigation on tax issues does not seem problematic.
Citations:
Court of Accounts. 2016. Simplifier la collecte des prélèvements versés par les entreprises. Report. Retrieved January 15, 2024 from https://www.ccomptes.fr/fr/publications/simplifier-la-collecte-des-prelevements-verses-par-les-entreprises
pwc. n.d. “Interactive Tax Data Explorer.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020/explorer-tool.html
Court of Accounts. 2016. Simplifier la collecte des prélèvements versés par les entreprises. Report. Retrieved January 15, 2024 from https://www.ccomptes.fr/fr/publications/simplifier-la-collecte-des-prelevements-verses-par-les-entreprises
pwc. n.d. “Interactive Tax Data Explorer.” https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2020/explorer-tool.html
Latvia
Latvia has a sizable shadow economy, and its tax revenues as a share of GDP are below the EU average. The European Commission has noted that Latvia collects less tax from capital and property compared to the EU average. Therefore, there is significant room to improve tax compliance.
All laws, including tax laws, are available online for free. However, due to frequent amendments, taxpayers need to stay updated, especially on regulations related to COVID-19 restrictions and relief.
The tax administration has an electronic system (EDS) for tax calculations and payments to simplify communication between the tax administration and taxpayers.
Since July 1, 2023, the government has introduced a licensing system for accountants who deliver their services as outsourced. The decision aims to increase the quality of accountancy but has created additional compliance costs, especially for small businesses.
All laws, including tax laws, are available online for free. However, due to frequent amendments, taxpayers need to stay updated, especially on regulations related to COVID-19 restrictions and relief.
The tax administration has an electronic system (EDS) for tax calculations and payments to simplify communication between the tax administration and taxpayers.
Since July 1, 2023, the government has introduced a licensing system for accountants who deliver their services as outsourced. The decision aims to increase the quality of accountancy but has created additional compliance costs, especially for small businesses.
Citations:
European Commission. 2023. Country report – Latvia. Institutional paper 238, June 2023. https://economy-finance.ec.europa.eu/publications/2023-country-report-latvia_en
European Commission. 2023. Country report – Latvia. Institutional paper 238, June 2023. https://economy-finance.ec.europa.eu/publications/2023-country-report-latvia_en
Spain
According to the Instituto de Estudios Fiscales, in 2022, a significant portion of the Spanish population – one in two citizens – felt they did not know what taxes were for, and many were unaware of the taxes they were paying. Concurrently, one in four people believed the state’s role should be minimal, intervening only to correct market imbalances. However, most citizens would pass a tax knowledge test, as evidenced by the percentage of correct answers.
As part of the RRP, the Tax Agency is developing a new model for remote taxpayer interaction and information services. The Integral Digital Administration aims to increase administrative capacities for tax collection and minimize compliance costs for taxpayers. The agency will assist taxpayers through multiple channels, streamlining service management and delivery. This centralized control enhances service quality and facilitates the development of appropriate IT tools and training methods.
As part of the RRP, the Tax Agency is developing a new model for remote taxpayer interaction and information services. The Integral Digital Administration aims to increase administrative capacities for tax collection and minimize compliance costs for taxpayers. The agency will assist taxpayers through multiple channels, streamlining service management and delivery. This centralized control enhances service quality and facilitates the development of appropriate IT tools and training methods.
Citations:
Tax Administration Agency. 2023. “Report on the Comprehensive Digital Administration (ADI) project.” https://sede.agenciatributaria.gob.es/static_files/Sede/Agencia_Tributaria/Planificacion/Plan_Recuperacion/Informe-sobre-el-proyecto-ADI.pdf
Instituto de Estudios Fiscales. 2023. “Barómetro fiscal.” https://www.ief.es/investigacion/soc_barometro.vbhtml
Committee of Experts. 2022. “White Paper on Tax Reform.” Institute of Fiscal Studies https://www.ief.es/docs/investigacion/comiteexpertos/LibroBlancoReformaTributaria_2022.pdf
Tax Administration Agency. 2023. “Report on the Comprehensive Digital Administration (ADI) project.” https://sede.agenciatributaria.gob.es/static_files/Sede/Agencia_Tributaria/Planificacion/Plan_Recuperacion/Informe-sobre-el-proyecto-ADI.pdf
Instituto de Estudios Fiscales. 2023. “Barómetro fiscal.” https://www.ief.es/investigacion/soc_barometro.vbhtml
Committee of Experts. 2022. “White Paper on Tax Reform.” Institute of Fiscal Studies https://www.ief.es/docs/investigacion/comiteexpertos/LibroBlancoReformaTributaria_2022.pdf
UK
Although the UK tax system is complex, the arrangements for collecting the three largest revenue-generating taxes – income tax, national insurance, and VAT – are relatively straightforward. The PAYE system efficiently captures the majority of individual taxpayers, and VAT is well-established.
For those required to submit full returns due to additional earnings, His Majesty’s Revenue and Customs (HMRC) is increasingly pushing for online submissions, which most taxpayers now use. While HMRC provides extensive downloadable guidance, it has faced criticism for insufficient support for individuals with queries not directly covered by the guidance or those in unusual circumstances.
Unsurprisingly, wealthier taxpayers are more likely to employ tax accountants, accepting the trade-off of paying for services to avoid handling their own returns and to take advantage of avoidance opportunities.
For those required to submit full returns due to additional earnings, His Majesty’s Revenue and Customs (HMRC) is increasingly pushing for online submissions, which most taxpayers now use. While HMRC provides extensive downloadable guidance, it has faced criticism for insufficient support for individuals with queries not directly covered by the guidance or those in unusual circumstances.
Unsurprisingly, wealthier taxpayers are more likely to employ tax accountants, accepting the trade-off of paying for services to avoid handling their own returns and to take advantage of avoidance opportunities.
6
Belgium
Tax collection in Belgium is largely automated, with individual tax statements predominantly pre-filled with data from the tax authorities. If this information is accurate, individuals have no further action to take. However, if the data is incorrect or incomplete, the process becomes more complex. Despite efforts by the authorities to simplify tax returns by reducing the number of codes and entries, the total remains high, making tax returns challenging to complete and understand for the average taxpayer.
Additionally, the numerous existing deductions and tax schemes are not only costly for the budget but also tend to create inefficiencies. For example, the extensive use of reduced VAT rates and exemptions heightens the risk of VAT noncompliance.
Additionally, the numerous existing deductions and tax schemes are not only costly for the budget but also tend to create inefficiencies. For example, the extensive use of reduced VAT rates and exemptions heightens the risk of VAT noncompliance.
Citations:
https://www.lecho.be/monargent/impots/declaration-fiscale/comment-remplir-votre-declaration-fiscale-en-2023/10306608.html
https://www.lesoir.be/516131/article/2023-05-29/tout-le-monde-nest-pas-capable-de-verifier-sa-declaration-dimpots
https://www.lecho.be/monargent/impots/declaration-fiscale/comment-remplir-votre-declaration-fiscale-en-2023/10306608.html
https://www.lesoir.be/516131/article/2023-05-29/tout-le-monde-nest-pas-capable-de-verifier-sa-declaration-dimpots
Greece
Since the onset of the economic crisis, the Independent Authority for Public Revenue (IAPR) has made significant progress in digitalizing tax systems, and the government has introduced numerous new tax laws.
In Greece, a long-standing tradition of adopting numerous laws, presidential decrees, and ministerial circulars to regulate taxation has created a complex and often confusing system (Sotiropoulos and Hristopoulos 2017). This complexity reduces the transparency and clarity of tax rules, prompting many citizens and businesses to hire personal accountants to manage their tax declarations.
Recognizing these challenges, successive governments have focused on simplifying tax rules and reducing administrative costs. In 2019, the government passed a law to digitalize tax information on income and expenses. The IAPR subsequently developed the “myDATA” platform (AADE 2024), which, despite delays due to the COVID-19 pandemic, is now operational. This platform is designed to digitalize the tax and accounting records of companies and liberal professions through the use of electronic accounting books.
However, the administrative capacities needed to effectively collect taxes still require further enhancement, especially given the scale of tax evasion. While penalties for tax evasion are enforced, the IAPR has also implemented a dispute resolution system to address complaints promptly. Nevertheless, citizens and businesses can appeal these penalties in administrative courts, where the slow and inefficient justice system often hampers the prosecution of tax evasion.
In Greece, a long-standing tradition of adopting numerous laws, presidential decrees, and ministerial circulars to regulate taxation has created a complex and often confusing system (Sotiropoulos and Hristopoulos 2017). This complexity reduces the transparency and clarity of tax rules, prompting many citizens and businesses to hire personal accountants to manage their tax declarations.
Recognizing these challenges, successive governments have focused on simplifying tax rules and reducing administrative costs. In 2019, the government passed a law to digitalize tax information on income and expenses. The IAPR subsequently developed the “myDATA” platform (AADE 2024), which, despite delays due to the COVID-19 pandemic, is now operational. This platform is designed to digitalize the tax and accounting records of companies and liberal professions through the use of electronic accounting books.
However, the administrative capacities needed to effectively collect taxes still require further enhancement, especially given the scale of tax evasion. While penalties for tax evasion are enforced, the IAPR has also implemented a dispute resolution system to address complaints promptly. Nevertheless, citizens and businesses can appeal these penalties in administrative courts, where the slow and inefficient justice system often hampers the prosecution of tax evasion.
Citations:
The law on digitalization of tax collection is Law 4646/2019.
AADE. 2024. “myData.” https://www.aade.gr/en/mydata
Sotiropoulos, D.A., and L. Hristopoulos. 2017. Excessive Regulation and Bad Regulation in Greece. Athens: Dianeossis Publications.
The law on digitalization of tax collection is Law 4646/2019.
AADE. 2024. “myData.” https://www.aade.gr/en/mydata
Sotiropoulos, D.A., and L. Hristopoulos. 2017. Excessive Regulation and Bad Regulation in Greece. Athens: Dianeossis Publications.
Hungary
The Hungarian tax system was ranked 11th out of 100 on the 2023 OECD international tax competitiveness index, earning 75 points. With more than 80 international treaties regulating tax issues worldwide, Hungary has a comparably high number. The country’s tax administration capacity is also relatively high. In terms of complexity, Hungary’s tax system ranks in the middle among EU countries. Digitalization has advanced rapidly, making the Hungarian system highly advanced and almost paper-free. The Hungarian tax authority (NAV) prepares draft personal income tax returns for citizens, which taxpayers need only accept or supplement if needed. However, for freelancers and entrepreneurs, the administrative burden and complexity of tax declarations have significantly increased. This followed the phase-out of a simple and highly popular fixed-rate tax scheme (KATA) in 2022, sparking protests and leading to the introduction of more costly and complicated alternatives for non-employees (Euronews 2022). The authority collects vast amounts of data and already uses AI algorithms. Concerns have been raised about the potential misuse of tax authorities to pressure individuals or companies opposed to the government. Efficiency and surveillance, therefore, have gone hand in hand.
Citations:
Euronews. 2022. “Hungarians protest for second day against tax overhaul.” 14 July. https://www.euronews.com/2022/07/14/hungarians-protest-for-second-day-against-tax-overhaul
Euronews. 2022. “Hungarians protest for second day against tax overhaul.” 14 July. https://www.euronews.com/2022/07/14/hungarians-protest-for-second-day-against-tax-overhaul
Slovenia
Tax regulations and procedures are complex for both individuals and companies. Prime Minister Janša’s government has already prepared measures to reduce bureaucracy and simplify procedures. In 2023, the Ministry of Finance analyzed the tax system and admitted that the tax rules had become opaque following the introduction of numerous partial changes in recent years – they have made the system less transparent.
Prime Minister Golob’s government announced a reform of the tax system in 2022 to address these shortcomings and introduce changes so that those with significantly more pay their taxes fairly. However, in 2023, the reform was still not prepared; at one point, it was even canceled. By the end of 2023, the reform was back on the agenda but not publicly presented. These developments have confused and not contributed to the predictability of the system.
For years, at least the income tax form, the “informative calculation,” has been prepared by the Financial Administration and sent to taxpayers, who can complain if the data is incorrect.
Prime Minister Golob’s government announced a reform of the tax system in 2022 to address these shortcomings and introduce changes so that those with significantly more pay their taxes fairly. However, in 2023, the reform was still not prepared; at one point, it was even canceled. By the end of 2023, the reform was back on the agenda but not publicly presented. These developments have confused and not contributed to the predictability of the system.
For years, at least the income tax form, the “informative calculation,” has been prepared by the Financial Administration and sent to taxpayers, who can complain if the data is incorrect.
Citations:
Vlada. 2024. “Cilj je pregleden, enostaven in uravnotežen davčni sistem.” https://www.gov.si/novice/2023-03-14-cilj-je-pregleden-enostaven-in-uravnotezen-davcni-sistem
Vlada. 2024. “Cilj je pregleden, enostaven in uravnotežen davčni sistem.” https://www.gov.si/novice/2023-03-14-cilj-je-pregleden-enostaven-in-uravnotezen-davcni-sistem
Netherlands
The Tax Office (Belastingdienst, BD) provides extensive information to taxpayers, but most deductions must be personally filed in order to receive a tax refund. Organizations like the Consumer Association and the Association of Homeowners regularly offer tips for filing tax returns. Given the complexity of the Dutch tax system, it is little surprise that there is a thriving industry of advisers – from sole practitioners to large firms – offering tax consultancy services. “Belastingadviseur-wijzers” assist individuals and small businesses in navigating different advisory options and corresponding rates, which started at €60 in 2023 but can vary widely based on personal or business circumstances. Appeals incur court fees starting at €50, rising to €184 for appeals involving dividend or sales tax.
Because tax policy and interpretations have not been well communicated, individuals, businesses and consultants may have based recent tax returns on outdated rules, potentially resulting in overpayment of taxes.
Moreover, the BD could be more supportive. For instance, while any online shopping service can accept payments via PayPal or iDEAL, the BD has yet to implement this functionality, citing excessive new legislation and the need to maintain existing laws.
Fifteen years ago, the Dutch BD was among the world’s most advanced tax authorities, known for its slogan: “We can’t make it more fun…”. Today, it is struggling to simplify an overly complex system. State Secretary Marnix van Rij (CDA), who was responsible for tax reforms under the Rutte IV government, aimed to “reduce the number of tax schemes by evaluating them every five years” and “abolish, cut back or adjust negatively evaluated schemes.” However, eliminating outdated regulations often proves more challenging than introducing new ones. For example, when the Court of Auditors recommended reviewing the agricultural exemption regulation in 2021, it lacked political support. The finance minister of the time remarked that the Court’s recommendations ran up against “the law of political gravity” in the parliament.
Errors in allowance settlements and other mistakes result in significant litigation costs. Following a Supreme Court ruling, hundreds of BD employees are rectifying levy payments wrongly imposed on assets, addressing some 310,000 objections. Similarly, hundreds of officials are working to compensate parents affected by the child benefit scandal. These “recovery cases” impact the BD’s ability to handle routine tasks, as outlined in its 2023 annual plan.
Because tax policy and interpretations have not been well communicated, individuals, businesses and consultants may have based recent tax returns on outdated rules, potentially resulting in overpayment of taxes.
Moreover, the BD could be more supportive. For instance, while any online shopping service can accept payments via PayPal or iDEAL, the BD has yet to implement this functionality, citing excessive new legislation and the need to maintain existing laws.
Fifteen years ago, the Dutch BD was among the world’s most advanced tax authorities, known for its slogan: “We can’t make it more fun…”. Today, it is struggling to simplify an overly complex system. State Secretary Marnix van Rij (CDA), who was responsible for tax reforms under the Rutte IV government, aimed to “reduce the number of tax schemes by evaluating them every five years” and “abolish, cut back or adjust negatively evaluated schemes.” However, eliminating outdated regulations often proves more challenging than introducing new ones. For example, when the Court of Auditors recommended reviewing the agricultural exemption regulation in 2021, it lacked political support. The finance minister of the time remarked that the Court’s recommendations ran up against “the law of political gravity” in the parliament.
Errors in allowance settlements and other mistakes result in significant litigation costs. Following a Supreme Court ruling, hundreds of BD employees are rectifying levy payments wrongly imposed on assets, addressing some 310,000 objections. Similarly, hundreds of officials are working to compensate parents affected by the child benefit scandal. These “recovery cases” impact the BD’s ability to handle routine tasks, as outlined in its 2023 annual plan.
Citations:
Klaver. 2022. “Belastingen: makkelijker kunnen we het maar niet maken.” De Correspondent, October 5.
Rijksoverheid. 2022. “Nieuw box 3 stelsel op basis van werkelijk (ipv fictief) rendement naar 2026 (o.g.v. uitspraak van de Hoge Raad. lid december 2021).”
NRC, Stokmans and Vermeulen. 2023. “Staatssecretaris Marnix van Rij over de hervormingen bij de Belastingdienst:’Ik vind het veel te lang duren.’” NRC March 22.
NRC. 2023. “Martijn Nouwen | wetenschapper Financiën hield openbaarmaking van belastingbeleid tegen, ‘dit leidt tot rechtsongelijkheid’.” March 28.
Ziesemer. 2023. “Waarom het maar niet lukt om ons belastingstelsel makkelijker te maken.” De Correspondent September 14.
Klaver. 2022. “Belastingen: makkelijker kunnen we het maar niet maken.” De Correspondent, October 5.
Rijksoverheid. 2022. “Nieuw box 3 stelsel op basis van werkelijk (ipv fictief) rendement naar 2026 (o.g.v. uitspraak van de Hoge Raad. lid december 2021).”
NRC, Stokmans and Vermeulen. 2023. “Staatssecretaris Marnix van Rij over de hervormingen bij de Belastingdienst:’Ik vind het veel te lang duren.’” NRC March 22.
NRC. 2023. “Martijn Nouwen | wetenschapper Financiën hield openbaarmaking van belastingbeleid tegen, ‘dit leidt tot rechtsongelijkheid’.” March 28.
Ziesemer. 2023. “Waarom het maar niet lukt om ons belastingstelsel makkelijker te maken.” De Correspondent September 14.
The tax system is only somewhat aligned with the goal of minimizing compliance and collection costs.
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Germany
The German income tax system is one of the most differentiated and complex in the global tax landscape. While standard tax declarations for employees’ wages are generally straightforward, the ambition to account for all the individual features of a single tax case has resulted in substantial complexities and reporting requirements.
Hence, tax compliance costs in Germany are significant. Digital tax declaration possibilities have advanced in recent years, with more information, such as from employers and health insurers, being centrally provided. Still, an SME in Germany needs a relatively high number of hours to comply with its tax reporting and declaration requirements (World Bank 2020).
Hence, tax compliance costs in Germany are significant. Digital tax declaration possibilities have advanced in recent years, with more information, such as from employers and health insurers, being centrally provided. Still, an SME in Germany needs a relatively high number of hours to comply with its tax reporting and declaration requirements (World Bank 2020).
Citations:
World Bank. 2020a. “Doing Business, Paying Taxes: Time (Hours per Year) [PAY.TAX.TM].” https://databank.worldbank.org/source/doing-business
World Bank. 2020a. “Doing Business, Paying Taxes: Time (Hours per Year) [PAY.TAX.TM].” https://databank.worldbank.org/source/doing-business
Italy
According to the World Bank’s Doing Business indicator on the “ease of paying taxes,” Italy has a very complex tax system. There is approximately one accountant for every 510 people in the country. The system has improved with the introduction of the pre-completed personal income tax return, which works well for those with only salaries and little property to declare. Otherwise, the procedure and rules are so complex that people need to seek external advice.
Citations:
Senato della Repubblica. 2022. “Elementi essenziali della tassazione in Italia.” https://www.senato.it/service/PDF/PDFServer/BGT/01361079.pdf
Senato della Repubblica. 2022. “Elementi essenziali della tassazione in Italia.” https://www.senato.it/service/PDF/PDFServer/BGT/01361079.pdf
Japan
Japan’s tax system is relatively complex with many different taxes, income thresholds and tax deductions. In recent years, however, Japan has been working on simplifying tax payment procedures. The National Tax Agency has been implementing the vision of a “society where all tax procedures can be performed without going to a tax office.” Nevertheless, between FY2020 and FY2021, the number of taxation-related requests for reconsideration increased from 4,369 to 4,582, with 10.4% of requests approved in 2020 and 13.4% in 2021.
The Digital Agency, established in September 2021, has promoted the use of My Number – a 12-digit personal number provided to each citizen to facilitate and link all administrative interactions. However, the introduction of My Number cards has proceeded with many problems. In May 2023, it was revealed that 130,000 bank accounts were erroneously linked to the wrong person. Once properly implemented, the My Number system should facilitate payment of taxes, reduction of administrative collection costs and sharing of data between various institutions.
The Digital Agency, established in September 2021, has promoted the use of My Number – a 12-digit personal number provided to each citizen to facilitate and link all administrative interactions. However, the introduction of My Number cards has proceeded with many problems. In May 2023, it was revealed that 130,000 bank accounts were erroneously linked to the wrong person. Once properly implemented, the My Number system should facilitate payment of taxes, reduction of administrative collection costs and sharing of data between various institutions.
Citations:
“My Number glitches undermine Japan’s digital future.” The Japan Times, June 9. https://www.japantimes.co.jp/opinion/2023/06/09/editorials/my-number-failure/
National Tax Agency. 2022. “National Tax Agency Report 2022.” https://www.nta.go.jp/english/Report_pdf/2022e.pdf
National Tax Agency. 2023. “National Tax Agency Report 2023.” https://www.nta.go.jp/english/Report_pdf/2023e.pdf
“My Number glitches undermine Japan’s digital future.” The Japan Times, June 9. https://www.japantimes.co.jp/opinion/2023/06/09/editorials/my-number-failure/
National Tax Agency. 2022. “National Tax Agency Report 2022.” https://www.nta.go.jp/english/Report_pdf/2022e.pdf
National Tax Agency. 2023. “National Tax Agency Report 2023.” https://www.nta.go.jp/english/Report_pdf/2023e.pdf
Poland
The online platform provided by the Ministry of Finance, known as the e-Tax Office, facilitates the digital management of various tax-related issues. This platform includes services such as Your e-PIT, access to penalty mandates, provision of a tax micro account number and the e-Microenterprise service, which is designed for generating and submitting standard audit file for tax reports, among other features.
Levels of public trust in the tax offices remains relatively stable: 30% of survey respondents indicate that they are satisfied, 20% are dissatisfied and 50% have no opinion on the issue. The most significant reservations come from entrepreneurs and residents of large cities, primarily due to excessively long tax proceedings. A major issue is the VAT refund process for businesses, with key criticisms directed at officials’ arbitrariness and lack of substantive knowledge, which potentially cause financial liquidity challenges.
Levels of public trust in the tax offices remains relatively stable: 30% of survey respondents indicate that they are satisfied, 20% are dissatisfied and 50% have no opinion on the issue. The most significant reservations come from entrepreneurs and residents of large cities, primarily due to excessively long tax proceedings. A major issue is the VAT refund process for businesses, with key criticisms directed at officials’ arbitrariness and lack of substantive knowledge, which potentially cause financial liquidity challenges.
4
Portugal
Portugal’s taxation system is often criticized for its complexity, partly due to the existence of over 500 tax benefits (Oliveira et al., 2019). The income tax system’s numerous “non-inclusive” options and diverse tax benefits contribute to this complexity and lack of transparency, favoring tax planning and consultancy firms and benefiting those who can afford their services. Key issues include the high number of tax benefits, the scattered nature of different regulations, overlapping objectives, and the difficulty in measuring impacts in terms of tax expenditure and the number of beneficiaries.
The profusion of tax benefits and the intricate rules surrounding them lead to increased costs in both compliance and administration of the tax system. These complexities burden tax authorities, who expend more resources explaining rules to taxpayers, and escalate compliance costs for taxpayers themselves. Additionally, there’s a higher likelihood of these benefits being exploited by unintended recipients, resulting in abuses and necessitating further administrative resources to address them.
In 2023, there was a noticeable increase in the perception of the Portuguese tax system as complex and ineffective, with the proportion of respondents holding this view rising from 68% to 72% (Deloitte, 2023). This growing negativity highlights the need for reform. Issues such as court efficiency, municipal licensing, authorizations, and general bureaucracy are identified as significant barriers to investment in Portugal. The implementation of electronic tax compliance systems, equipped with automatic error detection, is seen as a crucial step toward improving interactions between taxpayers and the tax authority, streamlining processes, and reducing complexities.
To enhance the competitiveness of the national economy, it is imperative to streamline the tax system by reducing complexity and ensuring greater stability. Ambiguity and frequent legislative changes are among the most commonly cited factors contributing to the complexity of the Portuguese tax system (Alves 2021).
The profusion of tax benefits and the intricate rules surrounding them lead to increased costs in both compliance and administration of the tax system. These complexities burden tax authorities, who expend more resources explaining rules to taxpayers, and escalate compliance costs for taxpayers themselves. Additionally, there’s a higher likelihood of these benefits being exploited by unintended recipients, resulting in abuses and necessitating further administrative resources to address them.
In 2023, there was a noticeable increase in the perception of the Portuguese tax system as complex and ineffective, with the proportion of respondents holding this view rising from 68% to 72% (Deloitte, 2023). This growing negativity highlights the need for reform. Issues such as court efficiency, municipal licensing, authorizations, and general bureaucracy are identified as significant barriers to investment in Portugal. The implementation of electronic tax compliance systems, equipped with automatic error detection, is seen as a crucial step toward improving interactions between taxpayers and the tax authority, streamlining processes, and reducing complexities.
To enhance the competitiveness of the national economy, it is imperative to streamline the tax system by reducing complexity and ensuring greater stability. Ambiguity and frequent legislative changes are among the most commonly cited factors contributing to the complexity of the Portuguese tax system (Alves 2021).
Citations:
Deloitte. 2023. “Observatório da Competitividade Fiscal 2023.”
https://www2.deloitte.com/pt/pt/pages/tax/articles/observatorio-competitividade-fiscal-2023.html
Alves, Andreia. 2021. The Complexity of the Tax System and Its Impact on the Practice of Accounting Professionals in Portugal. Dissertação de Mestrado, Universidade do Minho.
https://repositorium.sdum.uminho.pt/handle/1822/73708
Oliveira, Francisca et al. 2019. Os benefícios fiscais em Portugal. Grupo de Trabalho para o Estudo dos Benefícios Fiscais. https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBAAAAB%2BLCAAAAAAABACzMDQwAgCG5%2BMmBAAAAA%3D%3D
Deloitte. 2023. “Observatório da Competitividade Fiscal 2023.”
https://www2.deloitte.com/pt/pt/pages/tax/articles/observatorio-competitividade-fiscal-2023.html
Alves, Andreia. 2021. The Complexity of the Tax System and Its Impact on the Practice of Accounting Professionals in Portugal. Dissertação de Mestrado, Universidade do Minho.
https://repositorium.sdum.uminho.pt/handle/1822/73708
Oliveira, Francisca et al. 2019. Os benefícios fiscais em Portugal. Grupo de Trabalho para o Estudo dos Benefícios Fiscais. https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBAAAAB%2BLCAAAAAAABACzMDQwAgCG5%2BMmBAAAAA%3D%3D
Slovakia
The most recent academic study analyzing the compliance costs of Slovak taxation is the article by Nemec, Čižmárik, and Šagát (2017). According to this study, the compliance costs of income taxation for the self-employed in 2011 were between 156.37% and 839.02%, and for firms, between 12.76% and 47.13%. The tax administration system has improved since this research, particularly through electronization. However, additional steps are necessary, as stressed by the European Semester Report 2022 (European Union, 2022). The tax rules remain complicated and insufficiently stable.
Babčák (2023) provides compelling data. According to his paper, during 2023, the income tax law was amended 25 times, with 15 of these changes not taking effect on January 1. The VAT tax law was amended eight times, and the tax code ten times. The author also emphasizes (Babčák, 2023: 16) that the tax legislation is “characterized by the extraordinary complexity of individual tax institutes, generating the associated excessive administration with which neither the tax subjects nor the financial administration have sufficient experience.”
Babčák (2023) provides compelling data. According to his paper, during 2023, the income tax law was amended 25 times, with 15 of these changes not taking effect on January 1. The VAT tax law was amended eight times, and the tax code ten times. The author also emphasizes (Babčák, 2023: 16) that the tax legislation is “characterized by the extraordinary complexity of individual tax institutes, generating the associated excessive administration with which neither the tax subjects nor the financial administration have sufficient experience.”
Citations:
Nemec, J., Čižmárik, P., and Šagát, V. 2017. “An Estimation of the Compliance Costs of Slovak Taxation.” Ekonomie a Management 20 (2): 77-86.
Bančák, V. 2023. “Several Reflections and Thoughts on ‘Quo Vadis Slovak Tax Law’.” In Daňové právo a nové javy v ekonomike. Košice: UPJŠ, 7-44.
Nemec, J., Čižmárik, P., and Šagát, V. 2017. “An Estimation of the Compliance Costs of Slovak Taxation.” Ekonomie a Management 20 (2): 77-86.
Bančák, V. 2023. “Several Reflections and Thoughts on ‘Quo Vadis Slovak Tax Law’.” In Daňové právo a nové javy v ekonomike. Košice: UPJŠ, 7-44.
USA
The U.S. federal government has promoted electronic filing, which reduces paperwork and speeds up processing time. This minimizes both compliance and collection costs (Chang and Limato 2017).
The Internal Revenue Service (IRS) provides extensive online resources to help taxpayers find information about their tax liabilities, reducing the need for human interaction and thereby lowering compliance costs. Simultaneously, the IRS engages actively with taxpayers through various assistance programs designed to educate Americans about their tax responsibilities (Krause 2000). These programs are aimed at both individuals and businesses (Engel and Hines 1999).
The IRS uses a risk calculation to determine where to allocate resources for compliance. It employs data analytics to efficiently identify patterns of noncompliance (Hoopes et al. 2012).
On the other hand, the U.S. tax system is known for its complexity. This does not promote transparency or comprehensibility. The sheer volume of laws and exemptions is very difficult for individuals to navigate without professional assistance (Mock and Shurtz 2014). Americans have become highly reliant on tax preparation software to file accurate returns (Zelenak 2010). As a result, the IRS has sometimes demonstrated leniency with misfiled taxes due to confusion. For example, the IRS has a voluntary disclosure scheme that invites individuals to disclose unpaid taxes from previous years without penalty. Biden’s Inflation Reduction Act added another layer of complexity to the federal tax code. The new provisions will increase the administrative burden on the IRS and the tax compliance burden on taxpayers.
The Internal Revenue Service (IRS) provides extensive online resources to help taxpayers find information about their tax liabilities, reducing the need for human interaction and thereby lowering compliance costs. Simultaneously, the IRS engages actively with taxpayers through various assistance programs designed to educate Americans about their tax responsibilities (Krause 2000). These programs are aimed at both individuals and businesses (Engel and Hines 1999).
The IRS uses a risk calculation to determine where to allocate resources for compliance. It employs data analytics to efficiently identify patterns of noncompliance (Hoopes et al. 2012).
On the other hand, the U.S. tax system is known for its complexity. This does not promote transparency or comprehensibility. The sheer volume of laws and exemptions is very difficult for individuals to navigate without professional assistance (Mock and Shurtz 2014). Americans have become highly reliant on tax preparation software to file accurate returns (Zelenak 2010). As a result, the IRS has sometimes demonstrated leniency with misfiled taxes due to confusion. For example, the IRS has a voluntary disclosure scheme that invites individuals to disclose unpaid taxes from previous years without penalty. Biden’s Inflation Reduction Act added another layer of complexity to the federal tax code. The new provisions will increase the administrative burden on the IRS and the tax compliance burden on taxpayers.
Citations:
Lawrence Zelnak. 2010. “Complex Tax Legislation in the TurboTax Era.” Columbia Journal of Tax Law.
Rodney Mock and Nancy Shurtz. 2014. “The TurboTax Defense.” Florida Tax Review.
Jeffrey Hoopes, Devan Mescall, and Jeffrey Pittman. 2012. “Do IRS Audits Deter Corporate Tax Avoidance?” The Accounting Review.
Eduardo Engel and James Hines. 1999. “Understanding Tax Evasion Dynamics.” Working Paper 6903. National Bureau of Economic Research.
Kate Krause. 2000. “Tax Complexity: Problem or Opportunity?” Public Finance Review.
Bea Chiang, Jeffrey Limato. 2017. “The Use of Technology in Tax Preparation: A Closer Examination of Electronic Filing and Filing Errors.” Corporate Accounting and Finance.
Lawrence Zelnak. 2010. “Complex Tax Legislation in the TurboTax Era.” Columbia Journal of Tax Law.
Rodney Mock and Nancy Shurtz. 2014. “The TurboTax Defense.” Florida Tax Review.
Jeffrey Hoopes, Devan Mescall, and Jeffrey Pittman. 2012. “Do IRS Audits Deter Corporate Tax Avoidance?” The Accounting Review.
Eduardo Engel and James Hines. 1999. “Understanding Tax Evasion Dynamics.” Working Paper 6903. National Bureau of Economic Research.
Kate Krause. 2000. “Tax Complexity: Problem or Opportunity?” Public Finance Review.
Bea Chiang, Jeffrey Limato. 2017. “The Use of Technology in Tax Preparation: A Closer Examination of Electronic Filing and Filing Errors.” Corporate Accounting and Finance.
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The tax system is not at all aligned with the goal of minimizing compliance and collection costs.
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