THEORETICAL FOUNDATIONS OF PROVIDING TAX INCENTIVES FOR SMALL BUSINESS ENTITIES

This article examines the theoretical foundations of stimulating small business entities through tax policy. Building on core approaches in public finance and entrepreneurship economics, the study conceptualizes tax incentives as instruments that reduce the cost of formality, ease liquidity constraints, and improve expected returns from productive investment. The paper systematizes the main channels through which taxation influences small firms’ behavior, including after-tax profitability and capital accumulation, compliance and administrative costs, the stability and predictability of tax rules affecting entrepreneurial entry and survival, and competitiveness factors related to market access and growth under differentiated tax treatment. The analysis also highlights potential trade-offs—revenue losses, distortionary effects, unequal treatment, and incentive capture—emphasizing the need for targeted, time-bound, and performance-linked measures. The article proposes a conceptual framework for designing incentive-oriented tax policy for small enterprises that balances efficiency, equity, and administrative feasibility, with particular attention to transparency and measurable outcomes in preventing abuse. The findings contribute to a clearer theoretical basis for evaluating tax reliefs, simplified taxation regimes, and preferential rates aimed at fostering small business development and formalization.