Tax compliance costs and small business growth: A study of Indian microenterprises

Abstract

This review paper delves into the intricate relationship between tax compliance costs and the growth of Indian microenterprises, a sector pivotal to the nation's economic fabric. The primary objective is to synthesize existing research to understand how tax compliance costs influence the operational efficiency, scalability, and overall growth of microenterprises within the Indian context. Employing a comprehensive literature review methodology, this paper scrutinizes studies focusing on the direct and indirect costs of tax compliance, their regressive nature on microenterprises, and the consequent impacts on business growth. The findings highlight that tax compliance costs pose significant challenges for microenterprises, diverting critical resources from productive investment and innovation, thereby stymieing growth. The review underscores the need for policy reforms aimed at simplifying the tax system, leveraging technology for ease of compliance, and providing targeted incentives to alleviate the tax burden on microenterprises. Addressing these compliance costs is not only imperative for the sustainability of microenterprises but is also crucial for fostering a conducive environment for entrepreneurship, innovation, and economic growth in India. The paper concludes by identifying gaps in the current literature and proposing future research directions to enhance the understanding of tax compliance costs and their impact on microenterprise growth.