Trade-offs in the Design of Simplified Tax Regimes: Evidence from Sub-Saharan Africa

Nicolas Orgeira Pillai, Christopher Alexander Hoy, Thiago De Gouvea Scot de Arruda, Alex Oguso, Anna Custers, Daniel Zalo, Ruggero Doino and Jonathan George Karver

No 10909, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Date: 2024-09-16
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