Rethinking “Fair Share”: The Pivotal Role of Businesses in Global Tax Systems

As tax debates continue to shape policy agendas around the world, calls for “fair taxation” frequently dominate the headlines. Yet, beneath the surface of these simplified narratives lies a more complex reality: businesses are not only taxpayers—they are the backbone of global tax collection systems. From corporate income taxes to payroll deductions and consumption levies, companies shoulder both the economic and operational weight of modern taxation. Understanding the full scope of this role is essential for shaping policies that promote fairness without undermining economic vitality.

Beyond the Corporate Tax: A Hidden Network of Business Contributions

Traditionally, the conversation on business taxation has focused narrowly on corporate income tax (CIT). However, the truth is that companies contribute far more comprehensively. They are legally liable for a multitude of taxes beyond CIT—including payroll taxes, employer social security contributions, and property-related levies. More significantly, businesses also act as tax collectors, remitting value-added taxes (VAT), sales taxes, and withholding taxes on income and capital on behalf of employees and customers.

Across the Organisation for Economic Co-operation and Development (OECD), businesses account for an average of 37.8% of total tax revenue directly and are responsible for remitting an additional 47.4%. That means, on average, they handle more than 85% of all taxes collected—a staggering contribution that often goes unrecognized in public discourse.

A Global Perspective: The Numbers Behind the Burden

The extent to which nations rely on businesses for tax collection varies significantly:

• Czechia leads the way, with businesses contributing over 54.7% of total revenues.

• Countries like Lithuania, Chile, Germany, Slovenia, and Czechia rely on businesses for over 93% of their tax collections—when including both taxes paid and taxes remitted.

• Even in countries with relatively lower direct business tax burdens, such as Denmark and Iceland, businesses still act as the primary remittance agents for the majority of tax revenues.

This systemic reliance highlights not just the financial, but also the operational role that companies play in national revenue systems.

Who Really Bears the Economic Burden?

A crucial distinction in tax economics is between legal incidence (who sends the tax to the government) and economic incidence (who ultimately bears the cost). While businesses are the legal remitters, the economic cost is often shifted:

• Workers experience lower wages due to payroll taxes and employer contributions.

• Consumers face higher prices as companies pass on VAT and excise duties.

• Shareholders absorb reduced returns on capital, particularly in high-tax environments.

Empirical studies show that up to 400% of the corporate income tax burden may fall on labor, especially in open economies where capital is mobile and can flee high-tax jurisdictions. These findings challenge the logic of targeting businesses for increased taxation under the assumption that corporations alone will bear the cost.

Compliance Costs: The Invisible Load

Beyond paying and remitting taxes, businesses also absorb the compliance burden—the cost of administering the tax system on behalf of governments. For many firms, especially small and medium enterprises (SMEs), these costs are substantial, consuming time and resources that could otherwise be used for innovation, hiring, and growth.

According to studies, tax compliance costs can represent up to 29% of the total tax burden for an average EU company. Without businesses acting as de facto tax administrators, governments would need to significantly expand their tax enforcement infrastructure—an inefficient and costly alternative.

🏛️ Policy Implications: A Call for Balanced Tax Reforms

The data paints a compelling picture—businesses are indispensable to the tax ecosystem, not only in the taxes they pay directly but in the vital role they play in administering the broader system. They act as intermediaries between governments and society, bearing significant financial, administrative, and compliance burdens.

⚖️ Avoiding Unintended Consequences

Calls to raise taxes on businesses, often under the guise of achieving “tax fairness,” risk backfiring. Increasing corporate tax rates or expanding regulatory burdens may erode national competitiveness, leading to:

• Job losses, especially in labor-intensive sectors where companies may be forced to cut costs.

• Wage stagnation, as businesses pass on tax costs by limiting salary growth.

• Capital flight, as mobile capital shifts to more tax-friendly jurisdictions.

• Price inflation, particularly where VAT, excise, or input-related taxes are transferred to end consumers.

🔍 Key Considerations for Policymakers

Rather than focusing narrowly on increasing corporate tax revenue, tax reform should adopt a holistic and data-driven approach, recognizing the multifaceted role of businesses:

1. The Dual Role of Businesses

Businesses are both taxpayers and tax administrators. They pay corporate income taxes, employer social security contributions, and property taxes—but they also collect and remit taxes on wages (withholding tax), consumption (VAT/sales tax), and capital (investment-related levies). Ignoring this dual role results in underestimating their systemic contribution.

2. Understanding Distributional Effects

Raising taxes on corporations doesn’t mean the business “pays more” in a vacuum. Ultimately, someone absorbs the cost—be it:

• Workers through lower wages,

• Consumers through higher prices, or

• Shareholders through reduced returns.

Tax incidence studies clearly demonstrate that labor often bears a disproportionate share, particularly in open economies where capital is mobile but people are not.

3. Compliance Costs: The Silent Burden

Beyond financial tax liabilities, businesses also incur compliance costs—estimated to reach nearly 29% of the total tax burden in some jurisdictions. These costs stem from:

• Complex reporting requirements

• Frequent tax audits

• Shifting regulatory interpretations

• Investing in tax software or consultants

These costs can be especially punishing for SMEs, where compliance efforts divert resources away from growth, innovation, and job creation.

💡 Toward Smarter Taxation

To support vibrant, resilient economies, policymakers must rethink tax policy through the lens of economic sustainability, not just revenue maximization. This means:

• Simplifying tax codes

• Enhancing predictability and transparency

• Reducing compliance friction

• Incentivizing long-term investments

• Coordinating internationally to prevent base erosion without stifling competitiveness

Governments should move from confrontation to collaboration with the business community—viewing firms as allies in nation-building, not adversaries.

🔚 Conclusion: Recognizing the Engine Behind the Tax System

It’s time to reframe the narrative.

Businesses do not merely contribute to tax systems—they drive them. From direct tax payments to acting as indispensable collection agents, businesses are the operational engine of public finance. Over 85% of total tax revenues in OECD countries are either paid or collected by businesses. Ignoring this reality in policy design risks damaging the very infrastructure that underpins modern tax systems.

As the debate over tax fairness continues, Dawgen Global urges policymakers and stakeholders to broaden the lens—consider not just what businesses pay, but what they enable. From job creation and wage growth to public infrastructure and social programs, the revenue collected through businesses funds the future.

At Dawgen Global, we are committed to smarter, evidence-based tax policy advisory. We help businesses and governments find common ground, fostering systems that are fair, functional, and future-ready.

Next Step!