OECD – SUPPORTING SMES TO GET TAX RIGHT: STRATEGIC PLANNIN. In many countries, small and medium‑sized enterprises and entrepreneurs (hereafter jointly referred to as ‘SMEs’) are the backbone of the economy. They account for about 60% of employment and are largely responsible for economic growth, accounting for 50% to 60% of value added. (OECD, 2019) But while they are so important, they also face a significant number of challenges. Understanding both the importance of SMEs to the economy and these multifaceted challenges, members of the OECD Forum on Tax Administration (FTA) have collaborated over many years on initiatives aimed at reducing SMEs’ administrative burdens while ensuring tax compliance. This collaboration has resulted in a number of publications, such as the 2014 report Tax Compliance by Design: Achieving Improved SME Tax Compliance by Adopting a System Perspective (OECD, 2014) and the 2016 report Rethinking Tax Services: The Changing Role of Tax Service Providers in SME Tax Compliance (OECD, 2016). In the light of the increasingly rapid digitalisation of the economy, the changing business environment and the recent impacts of COVID‑19, FTA members decided to revisit these issues by collaborating on a series of reports aimed at supporting SMEs to get tax right. Tax administrations can play a key role in supporting SME compliance and in reducing the burdens they are confronted with. While tax administrations will not be able to address fully all of the different drivers of burdens faced by SMEs, they may be able to help mitigate many of them, especially tax compliance costs which can be significant for SMEs, particularly when compared to large businesses. In particular, tax administrations are well‑positioned: • To identify pressure points for SMEs stemming from the tax system, including engaging with policy makers and other government agencies to help reduce burdens through whole of government approaches; and • To ensure fair competition by reducing burdens on honest taxpayers while taking action against the non‑compliant. In doing so, tax administrations might want to consider adopting a strategic approach which would allow them to not only focus on immediate concerns in a holistic manner, but also to plan for more systemic changes which take time. This includes the use of new digital tools and compliance‑by‑design processes, as well as better joining‑up across government. Key to this is enhanced engagement with SMEs to improve understanding of their environment, constraints and possible opportunities for further supporting them to get tax right. This report, the first in the planned series of reports on supporting SMEs, is intended to assist tax administrations in developing a strategic approach as outlined above. It sets out which elements tax administrations may wish to consider and which stakeholders to involve and how. It also provides some ideas and examples as to the development and implementation of such strategies. The report is organised around two parts. The first part, which looks at designing, implementing and understanding the effectiveness of strategic approaches for SMEs, consist of four chapters: • Chapter 1. Introduction: This introductory chapter briefly describes the importance of SMEs, the challenges they are facing and the roles tax administrations can play in in supporting SME compliance and reducing burdens; • Chapter 2. Developing a strategic approach: This chapter looks at the different strategic approaches taken by tax administrations towards SMEs and identifies a number of building blocks that administrations may wish to consider when developing a strategy, including the importance of developing an understanding of how SMEs operate, as well as the identification of approaches to manage compliance risks and to reduce administrative burdens; • Chapter 3. Implementing the strategic approach: This chapter identifies the key factors for a successful implementation of the strategic approach, including organisational structures to support SMEs, internal and external communication of the approach, the tax administration resources, and cultural aspects; and • Chapter 4. Understanding the effectiveness of the strategic approach: This final chapter of the first part sets out the process of measuring the effectiveness of an SME strategy, including the importance of identifying indicators and related data sources, how to collect and analyse relevant data, and how to understand the outcomes. The second part of the report includes two case studies which provide a country view on how to develop a strategic approach for SMEs. The first case study, Chapter 5, was authored by the Indonesian Directorate General of Taxes (DGT). It looks at the development and implementation of the DGT’s business development service programme. Chapter 6, which contains the second case study, was prepared by the Inland Revenue Authority of Singapore and describes its service design project for SMEs. It is intended that future reports in this series will cover: • Tax administration engagement with SMEs, including out‑reach and education; • Digital services provided to SMEs, including how to support those that are digitally challenged;• Issues around trust, fairness and cooperation, including the risks of the COVID‑19 environment on compliance; and • Solutions that integrate tax affairs in the regular business operations, so called “seamless taxation” solutions. To support the production of these reports and to support an ongoing international collaboration among tax administrations on SME‑related issues, it is recommended that members of the OECD’s Forum on Tax Administration (FTA) set‑up a new Community of Interest on SMEs. This community would bring together tax officials from FTA member jurisdictions on a regular basis to exchange and present on latest developments in this sector, and to discuss new ideas and approaches for engaging with SMEs.
