Can taxation be smart?!

2018 G20 YEA summit produced five reports on how to promote young entrepreneurship. One of them was produced with EY and talks about smart taxation for young entrepreneurs as a way of promoting innovation, entrepreneurship and job creation.

Already in 2017 the G20 YEA Berlin communique recommendation on taxation stated:

“We call on G20 leaders to enable Small and Medium Enterprises (SMEs) to scale through taxation incentives for scale-ups and investors by adopting progressive policy measures like a separate tax category for young entrepreneurs working in priority areas of innovation and social entrepreneurship. We further encourage the harmonisation of taxation schemes in the G20countries to lower barriers for doing business across borders and creating tax incentives for cross-border access to capital in the G20.”

At a time of ongoing economic adjustment and global shifts in policy, it is imperative to address the importance of elevating entrepreneurship to youth job creation as an employment path and means to a sustainable livelihood. With more than 70 million young people currently unemployed and the global youth unemployment rate continuing to rise, it is clear that this group has been hit hard by the aftershocks of the global financial crisis.

The 2018 report expands on the major priorities in 2017 — including the critical role for “smart”taxation and, more broadly, competitive regulation — in supporting the successful scaling of the enterprises of young entrepreneurs. In our view, smart taxation means targeted tax planning support, and administrative simplification, for young entrepreneurs. Our aim is to move beyond a list of best practices, and instead, propose innovative ideas for new solutions and actionable recommendations for change that governments can adopt.

Access to economic opportunity for young people through employment, entrepreneurship and finance is a critical, growing challenge in G20 economies today. The crucial role entrepreneurship is expected to play in supporting sustainable growth comes through its potential not only to drive innovation and create jobs, but also to promote work for young people that is full, productive and innovative.

In our view, tax preparation and collection offers the greatest potential for smart policy: where young entrepreneurs can have influence and policy change can have a powerful impact. Young entrepreneurs aim to comply with tax rules but often are overwhelmed by the onerous requirements. The first step is to remove the obstacles to tax compliance, and then provide access to tools and education for effective tax planning.

Our Four Recommendations:

G20 YEA has proposed four key recommendations for G20 governments to consider. These are smart taxation policies, which offer targeted support to young entrepreneurs through strategic tax planning and access to simplified compliance.

The list was developed with input from the G20 YEA network of young entrepreneurs and the government policy and taxation professionals within the EY organisation.

  1. Introduce a turnover-based threshold for indirect taxation of entrepreneurs and SMEs
  2. Support business education for young entrepreneurs and SMEs
  3. Simplify and digitise tax compliance process and support tax education
  4. Taxation policies to support equity-based remuneration

To grow and scale youth entrepreneurship, taxation policy has a significant role to play. This is about a fresh approach to tax, focusing on targeted support for young entrepreneurs in tax planning and in streamlined compliance.

You can find out more about the recommendations made in the report here.

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