Increasing Tax Revenues: Do Start-up Cost, Time and Procedures Matter?

  • Kafigi Jeje Institute of Accountancy Arusha
Keywords: Entry regulations; cost; time; procedures; tax revenues

Abstract

A competitive business environment is one of the major contributors in the advancement of economic growth. This is a business environment that encompasses competitive industries whose friendly entry regulations aim at encouraging enterprises to formalize their business in order to compete, grow, and ultimately attain sustainability. The government benefits from the competitiveness, growth, and sustainability of these players. The benefits are translated in terms of the increased tax revenues collected from registered enterprises. Little is known as to whether the entry regulations have any relationship with tax revenues. Literature confirms that the entry regulations are mainly defined in terms of the cost of start-up procedures incurred, time spent, and procedures undertaken when establishing a new business. Therefore, this study sought to establish the contribution of cost, time, and procedures on tax revenues. The study relied on data from 100 countries, for a period of 2010 to 2017. The multiple regression analysis confirms that the number of procedures negatively relates to tax revenues. Similar relationships exist between cost and tax revenues for 2010 to 2012, but not 2013 to 2017. However, relationships between time and tax revenues do not exist. The study suggests that governments need to devise and adopt initiatives that seek to relax entry regulations particularly the reduction of cost and procedures in order to encourage more business registrations and eventually, increase employment and government revenues. It is also suggested that care should be taken when relaxing regulations in order to stimulate innovative entrepreneurship and discourage entry of non-innovative ideas in the markets.

Author Biography

Kafigi Jeje, Institute of Accountancy Arusha

Department of Business Management

References

Antunes, A. R., & Cavalcanti, T. V. (2007). Start up Costs, Limited Enforcement, and the Hidden Economy. European Economic Review , 51 (1), 203-224.

Asongu, S. A., & Odhiambo, N. M. (2019). Challenges of Doing Business in Africa: A Systematic Review. Journal of African Business , 20 (2), 259-268.

Audretsch, D. B., Belitski, M., & Desai, S. (2019). National Business Regulations and City Entrepreneurship in Europe: A Multilevel Nested Analysis. Entrepreneurship Theory and Practice , 43 (6), 1148-1165.

Branstetter, L., Lima, F., Taylor, L. J., & Venâncio, A. (2014). Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal. The Economic Journal , 124 (577), 805-832.

Bruhn, M., & McKenzie, D. (2014). Entry Regulation and the Formalization of Microenterprises in Developing Countries. The World Bank Research Observer , 29 (2), 186-201.

Chambers, D., McLaughlin, P. A., & Stanley, L. (2019). Barriers to Prosperity: The Harmful Impact of Entry Regulations on Income Inequality. Public Choice , 180 (1-2), 165-190.

Darnihamedani, P., Block, J. H., Hessels, J., & Simonyan, A. (2018). Taxes, Start-up Costs, and Innovative Entrepreneurship. Small Business Economics , 51 (2), 355-369.

de Mel, S., McKenzie, D., & Woodruff, C. (2013). The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka. American Economic Journal: Applied Economics , 5 (2), 122-150.

Divanbeigi, R., & Ramalho, R. (2015). Business Regulations and Growth. Policy Research Working Paper 7299, World Bank Group.

Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2002). The Regulation of Entry. The Quarterly Journal of Economics , 117 (1), 1-37.

Dreher, A., & Gassebner, M. (2013). Greasing the Wheels? The Impact of Regulations and Corruption on Firm Entry. Public Choice , 155 (3-4), 413-432.

Fonseca, R., Lopez-Garcia, P., & Pissarides, C. A. (2001). Entrepreneurship, Start-up Costs and Employment. European Economic Review , 45 (4-6), 692-705.

Haidar, J. I. (2012). The Impact of Business Regulatory Reforms on Economic Growth. Journal of The Japanese and International Economies , 26 (3), 285-307.

Keter, J. (2012). Government Regulations and Procedures and the Establishment of SMEs in the Rural Areas: A Survey of SMEs in Kesses Division, Uasin Gishu District, Kenya. Journal of Emerging Trends in Educational Research and Policy Studies , 3 (6), 816-821.

Kindsfaterienė, K., & Lukaševičius, K. (2008). The Impact of the Tax System on Business Environment. Engineering Economics , 57 (2), 70-77.

Kitching, J., Hart, M., & Wilson, N. (2015). Burden or Benefit? Regulation as a Dynamic Influence on Small Business Performance. International Small Business Journal , 33 (2), 130-147.

Klapper, L., Laeven, L., & Rajan, R. (2006). Entry Regulation as a Barrier to Entrepreneurship. Journal of Financial Economics , 82 (3), 591-629.

Munemo, J. (2014). Business Start-up Regulations and the Complementarity between Foreign and Domestic Investment. Review of World Economics , 150 (4), 745-761.

Munemo, J. (2015). Foreign Direct Investment, Business Start-up Regulations, and Entrepreneurship in Africa. Economics Bulletin , 35 (1), 1-13.

Munyanyi, W., & Chiromba, C. (2015). Tax Incentives and Investment Expansion: Evidence from Zimbabwe’s Tourism Industry. AD-minister , 27, 27-51.

Trifu, A. E., Gîrneaţă, A., & Potcovaru, A. M. (2015). The Impact of Regulations upon the Startup of New Businesses. Economia. Seria Management , 18 (1), 49-59.

van Stel, A., Storey, D. J., & Thurik, A. R. (2007). The Effect of Business Regulations on Nascent and Young Business Entrepreneurship. Small Business Economics , 28 (2-3), 171-186.

Williams, C. C., Martinez-Perez, A., & Kedir, A. M. (2017). Informal Entrepreneurship in Developing Economies: The Impacts of Starting Up Unregistered on Firm Performance. Entrepreneurship Theory and Practice , 41 (5), 773-799.

Zoega, G. (2015). Productivity and Institutions. Icelandic Review of Politics and Administration , 11 (2), 375-402.
Published
2020-11-03
Section
Business Administration and Business Economics