- New EY report recommends four ways G20 governments can remove tax compliance obstacles and support business education for young entrepreneurs
With more than 70 million young people currently unemployed globally and the global youth unemployment rate continuing to rise, G20 governments need to consider providing targeted tax planning support and administrative simplification for young entrepreneurs. This is according to a new EY report, Smart taxation for young entrepreneurs: navigating tax rules and planning for growth.
Ahead of the G20 Young Entrepreneurs’ Alliance 2018 Summit in Buenos Aires, Argentina, this week, the report outlines how smart taxation and, more broadly, competitive regulation can support, rather than hinder, young entrepreneurs in their journey to growth.
George Atalla, EY Global Government & Public Sector Leader, says:
“Access to economic opportunity for young people through employment, entrepreneurship and finance is critical for creating sustainable economies. Young entrepreneurs are willing to comply with tax rules, but often are overwhelmed by the onerous requirements. Reducing the complexity and streamlining tax compliance and planning is crucial to supporting young entrepreneurial ambitions.”
Recommendations for removing tax compliance obstacles
The report includes four key recommendations for removing the obstacles to tax compliance, as well as ways to provide access to tools and education for effective tax planning:
- Introduce an optional turnover-based threshold for indirect taxes, typically VAT and sales tax, for companies run by young entrepreneurs. As young entrepreneurs begin their journey and if their company is not yet profitable, there is no direct tax burden, but there are indirect costs and compliance obligations related to determining, collecting and transferring tax monies for sales taxes, which may negatively impact cash flow of the underlying business.
- Support business education for young entrepreneurs. Countries that do not explicitly allow education expenses to be deductible in calculating corporate income taxes should make some legal provision to do so. This would allow a deduction of reasonable expenses incurred for business education of both staff and contractors of business run by young entrepreneurs irrespective of whether the underlying education or training is provided by certified educational establishments or individual business consultants.
- Simplify and digitize tax compliance process and support tax education. Allow cash rather than accrual accounting for both revenues and expenses, eliminating the need to keep separate tax and accounting books. Additionally, issue and receive invoices via certified apps, or digital tools, designed by the revenue authorities and provided for free. These will automatically produce tax returns for both direct and indirect taxes, which can be filed electronically via secure channels. Regarding tax education for young entrepreneurs, countries should use digital formats at their revenue service websites, such as webcasts, voice or online chat help.
- Taxation policies to support equity-based remuneration. This initiative would exempt individuals from capital gains or other similar taxes on equity sold, if the equity was issued when the company was below a certain revenue cap that would be determined at the discretion of each G20 country. Additionally, a provision could be made requiring equity to be held by an individual for a certain period of time to qualify for an exemption and that a total amount of exempt capital gain should not exceed a certain threshold.
Luis Pontes, EY Global Government & Public Sector – Americas Emerging Markets Leader, says:
“There are already some very good policies among the G20 to help young entrepreneurs, but our recommendations include innovative ideas for new solutions that will not only provide high-impact support for young entrepreneurs, but will help drive social benefits.”
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Notes to Editors
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