The Increasing Tax Administrative Burden in Germany: A Comprehensive Analysis of Costs in 2021

Concepts de base

Germany's tax system places a significant administrative burden on both the government and taxpayers, with the total cost exceeding 20% of tax revenue in 2021, a figure likely underestimated and indicating a worsening trend since 1984 despite technological advancements.

Résumé

This research paper examines the administrative costs associated with Germany's tax system in 2021. The authors argue that the current system is inefficient and places a significant burden on both taxpayers and the government.

Bibliographic Information: Mantzaris, C., & Fošner, A. (2024). Germany’s Tax Revenue and its Total Administrative Cost. Journal of Multidisciplinary Research.

Research Objective: To calculate and analyze the total administrative cost of Germany's tax system in 2021, comparing it to historical data and exploring potential reasons for the findings.

Methodology: The researchers compiled data from various sources, including government budget documents, industry reports, and market research studies. They categorized administrative costs into three groups: government costs, taxpayer costs for outsourcing tax duties, and taxpayer costs for fulfilling tax duties internally. The study employed a novel approach to estimate the hidden opportunity costs incurred by taxpayers who manage their own tax compliance.

Key Findings: The study reveals that the total administrative cost of Germany's tax system in 2021 likely exceeded 20% of total tax revenue. This figure represents a significant increase from the estimated 16% in 1984. Notably, the research highlights that approximately 90% of the total administrative cost falls on taxpayers, with only 10% attributed to government expenses.

Main Conclusions: The authors conclude that Germany's tax system is inefficient and unsustainable in its current form. They argue that the increasing administrative burden, despite technological advancements, hinders entrepreneurship, innovation, and social justice. The study suggests that a fundamental change in the taxation framework is necessary to address these issues.

Significance: This research provides valuable insights into the hidden costs of taxation and underscores the need for tax system reform in Germany and potentially other jurisdictions with similar systems. The study's novel methodology for estimating hidden taxpayer costs offers a valuable tool for future research in this area.

Limitations and Future Research: The authors acknowledge the uncertainty associated with quantifying hidden opportunity costs for taxpayers who handle their own tax compliance. They encourage further research to refine the estimation methods and explore potential solutions to reduce the administrative burden of tax systems. Additionally, comparative studies across different jurisdictions would provide valuable insights into the relative efficiency of various tax systems.

Stats

Total tax revenue (excluding municipal taxes) in Germany in 2021: €832,091,000,000
Estimated total administrative cost of Germany's tax system in 2021: Over €168,303,019,310
Estimated ratio of tax administrative costs to tax revenue in Germany in 2021: Over 20.23%
Estimated ratio of tax administrative costs to tax revenue in Germany in 1984: Around 16%
Percentage of German taxpayers using tax consultants in 2016: 28%
Estimated percentage of total tax administrative costs borne by taxpayers in Germany: 90%
Estimated percentage of total tax administrative costs borne by the government in Germany: 10%

Citations

"Only when one knows the current situation, one can improve it or compare solutions."
"Although all attempts to quantify total tax administrative costs can be only an estimate, this article updates public knowledge with a current value."
"Being a ‘declare yourself’ system, the German taxation system passes the bulk of tax administrative burden onto the taxpayer."
"This indicates: higher tax administrative burdens outpaced possible productivity gains from digitalisation. It also shows the unsustainability of the path Germany’s tax framework is currently on."
"A high rise in tax burdens accompanied with starting a business hinders entrepreneurship and a startup culture, hampering progress and innovation."

Idées clés tirées de

Germany's Tax Revenue and its Total Administrative Cost

by Chri... à arxiv.org 11-20-2024

https://arxiv.org/pdf/2411.12543.pdf

Questions plus approfondies

How can governments leverage technology and automation to reduce the administrative burden of taxation without compromising data security and privacy?

Governments can significantly reduce the administrative burden of taxation through strategic implementation of technology and automation, without compromising data security and privacy. Here's how:
1. Streamlining Tax Filing and Payment:

Pre-filled Tax Forms: Utilizing existing data sources, governments can pre-populate tax forms with income details, deductions, and credits, minimizing taxpayer input and reducing errors.
Digital Payment Platforms: Secure, user-friendly online platforms can facilitate seamless tax payments, offering various options and real-time transaction tracking.
Mobile-First Approach: Developing mobile applications for tax-related services allows taxpayers convenient access to information, filing, and payment functionalities on the go.
2. Automating Tax Administration Processes:

Robotic Process Automation (RPA): Deploying RPA for repetitive tasks like data entry, verification, and basic calculations frees up tax officials to focus on more complex issues.
Artificial Intelligence (AI) and Machine Learning (ML): Implementing AI/ML algorithms can enhance fraud detection, risk assessment, and tax gap analysis, leading to more efficient audits and resource allocation.
Data Analytics and Business Intelligence: Leveraging data analytics can provide valuable insights into taxpayer behavior, compliance patterns, and areas for process improvement.
3. Ensuring Data Security and Privacy:

Robust Cybersecurity Measures: Implementing strong encryption protocols, multi-factor authentication, and regular security audits are crucial to protect sensitive taxpayer data.
Data Minimization and Purpose Limitation: Collecting and retaining only necessary taxpayer information for specific, legitimate purposes minimizes potential risks.
Transparency and Consent: Clearly communicating data collection practices, obtaining informed consent, and providing individuals with access to and control over their data fosters trust.
4. Fostering Digital Literacy and Inclusivity:

Public Awareness Campaigns: Educating taxpayers about digital tax services, data security measures, and their rights empowers them to engage confidently.
Accessible Technology: Ensuring digital tax platforms are user-friendly, accessible to people with disabilities, and available in multiple languages promotes inclusivity.
Support and Assistance: Providing clear guidance, FAQs, and dedicated helplines assists taxpayers in navigating digital tax processes effectively.
By embracing these strategies, governments can harness the power of technology and automation to create a more efficient, taxpayer-friendly, and secure tax system.

Could simplifying the tax code, even if it leads to a reduction in tax revenue, ultimately stimulate economic growth and lead to higher tax revenue in the long run?

Yes, simplifying the tax code, even if it initially leads to a reduction in tax revenue, can ultimately stimulate economic growth and generate higher tax revenue in the long run. This concept aligns with the principles of supply-side economics. Here's how it works:
1. Reduced Compliance Costs:

Lower Administrative Burden: A simpler tax code with fewer deductions, exemptions, and loopholes reduces the time and resources businesses and individuals spend on compliance. This frees up resources for investment, innovation, and job creation.
Increased Transparency and Certainty: A straightforward tax system makes it easier for businesses to understand their tax liabilities, fostering a more predictable and stable business environment, encouraging investment.
2. Enhanced Economic Activity:

Incentives for Work and Investment: Lower tax rates, often a byproduct of simplification, can incentivize work, savings, and investment, leading to increased productivity and economic expansion.
Attracting Foreign Investment: A simpler, more transparent tax system can make a country more attractive to foreign investors, bringing in capital and expertise.
3. Broader Tax Base:

Reduced Tax Avoidance: A simpler tax code with fewer loopholes makes it more difficult for individuals and businesses to engage in aggressive tax avoidance strategies, leading to a fairer and more efficient tax system.
Increased Compliance: A straightforward tax system can encourage voluntary compliance as taxpayers find it easier to understand their obligations.
4. Long-Term Revenue Growth:

Economic Expansion: As the economy grows, driven by increased investment and productivity, the tax base expands, leading to higher tax revenue even at lower rates.
Increased Employment: Economic growth creates jobs, leading to higher income tax revenue and reduced social welfare spending.
However, it's crucial to note that the success of tax simplification in stimulating economic growth depends on various factors, including the specific design of the reforms, the overall economic context, and accompanying fiscal policies.

What are the ethical implications of a complex tax system that disproportionately burdens individuals and businesses with fewer resources to navigate its intricacies?

A complex tax system that disproportionately burdens individuals and businesses with fewer resources to navigate its intricacies raises significant ethical concerns:
1. Fairness and Equity:

Unequal Access to Tax Benefits: Complex tax codes often contain numerous deductions, exemptions, and credits that are difficult to understand and utilize without specialized knowledge. This benefits wealthier individuals and corporations who can afford tax professionals, while those with fewer resources miss out on potential savings.
Regressive Impact: A complex system can have a regressive impact, where lower-income individuals and small businesses bear a proportionally higher burden due to their inability to navigate complex rules or afford professional help.
2. Transparency and Accountability:

Obscuring True Tax Burden: Intricate tax codes can make it challenging for citizens to understand the true cost of government and hold elected officials accountable for tax policies.
Erosion of Trust: A system perceived as unfair and benefiting the wealthy can erode public trust in government and the tax system itself.
3. Economic Opportunity and Social Mobility:

Barriers to Entrepreneurship: Complex tax compliance requirements can discourage entrepreneurship, particularly among individuals from disadvantaged backgrounds who may lack the resources to navigate the system.
Perpetuating Inequality: A tax system that favors the wealthy can exacerbate existing inequalities, limiting opportunities for upward mobility and reinforcing social stratification.
4. Ethical Obligations of Government:

Duty to Fairness: Governments have an ethical obligation to ensure the tax system is fair, equitable, and does not disproportionately burden any particular group.
Promoting Transparency and Understanding: Governments should strive for a tax system that is transparent, understandable, and accessible to all citizens.
Addressing these ethical concerns requires a commitment to tax simplification, enhanced transparency, and targeted support for individuals and businesses with limited resources. This includes providing clear information, accessible guidance, and affordable tax assistance programs to ensure everyone can fulfill their tax obligations fairly.