Small taxpayers are greater in number and will tend to incur compliance costs that are disproportionate to the tax they pay. Taking taxpayers 'out of the tax net' by raising thresholds is a popular move at budget time although too often these same people will creep back into the net as the real value of thresholds falls with inflation. Some countries have a system in which thresholds are automatically raised in line with prices and this is a good way to prevent an upward drift in taxpayer numbers and costs. A strategy that can be very effective in keeping down administrative costs is a presumptive tax on small traders . It may be much simpler administratively to make a tax charge for these traders based on an average income or turnover for the sector rather than on an inevitably unreliable assessment of the individual trader's income, turnover or profit.
Tax rate caps High tax rates can cause substantial enforcement problems for a tax administration.
High tariffs on imports, for example, may create strong incentives for smuggling. High income tax rates may cause greater concealment of income and use of tax avoidance methods and so on. In both cases there is the possibility that revenue will be lower at high rates than it is at lower rates . As rates rise the effective base shrinks and the tax administration will come under pressure from honest taxpayers to clamp down on the dishonest. One way to reduce smuggling and other sorts of evasion is to ensure that tax rates do not get 'too high'.