Taxation compliance burden for small business in South Africa

The world over it has been recognised that the small business sector plays an important, if not critical, role in the economic and social development of a country. This sector, however, states that complying with taxation regulations is a constraint on their growth, due to the costs they have to incur to become and remain tax compliant. The objective of this study is, therefore, to provide an overview of what has been researched to date in the area of tax compliance costs for small businesses in South Africa and to ensure that duplication of research efforts do not occur. In order to achieve this objective, the definition of ‘small business’ both from an economic as well as taxation perspective is necessary as certain grants and benefits are only available to small businesses. What exactly constitutes the compliance costs of taxation is the next area that requires attention. This has been a topic that has been explored and defined, broadly and specifically in many studies conducted around the world. Although there is still controversy regarding what exactly constitutes taxation compliance costs, there is one definition that is generally accepted amongst most researchers. This definition includes the costs incurred in respect of the taxpayer’s time on understanding the rules and applying them, the record-keeping costs, the payments made to professional advisors and incidental costs incurred by the small business. The methods and techniques used in quantifying these costs have also differed per country and per study, which makes comparisons between countries and even taxes in the same country very difficult. One of the costs of complying with the taxation regulations is the payment to tax practitioners. It is evident that tax practitioners are frequently used by small businesses both locally and internationally. The payment to these tax practitioners is usually incurred due to the fact that the small business owner neither has the time nor the expertise to deal with these matters. These tax practitioners are, therefore, a valuable commodity when it comes to obtaining research information into tax compliance costs for small businesses as they have first hand knowledge of these costs that the small businesses face. The use of these tax practitioners and the true facts about other tax compliance costs and their impact on small businesses in South Africa was established by reviewing the studies done on this matter in South Africa. From the studies reviewed, it was found that there has been some focus on small businesses and their tax compliance costs (with the assistance of tax practitioners in certain cases), but these are very limited. The most critical research that might still be required in the future is as follows: 1. Definition of ‘small business’ – including ‘formal’ and ‘informal’ small businesses 2. Definition of ‘tax compliance costs’ 3. Survey of tax practitioners to identify the principle time and cost burdens on ‘formal’ small businesses associated with preparing and filing tax returns for the most common business taxes, the procedures for paying taxes, and going through tax inspections or audits, including fines and other tax-related payments etc. 4. Survey of ‘formal’ small businesses, per sector, to establish their actual compliance costs per tax and per function underlying each tax (for example: registration, payment etc). 5. Survey of the ‘informal’ small business sector to establish their perceptions about taxation and the costs involved in becoming compliant It is hoped that these studies will be conducted on a national basis to ensure that government is presented with representative empirical evidence in order for it to be properly informed to make the necessary changes to assist small businesses with their tax compliance burden. CopyrightDissertation (MCom)--University of Pretoria, 2009.Taxationunrestricte

Addressing the small business tax compliance burden - evidence from South Africa

Small businesses have the potential to grow the economy, generate jobs and reduce poverty, but they face many constraints including high tax compliance costs and burdens. A comparison of the findings and recommendations made in small business tax compliance cost studies conducted in South Africa with initiatives introduced by the South African Revenue Service (SARS), substantiated by consultations with a SARS and a South African Institute of Chartered Accountants official, reveals that SARS has, in most cases, attempted to address the tax compliance burdens identified in these studies. However, SARS has only partially addressed the complexity of the tax law, the lack of software to assist small businesses with their record-keeping and the compliance burden associated with provisional tax. SARS has failed to address the need for a threshold below which no small business tax return is required to be submitted, the inclusion of tax in the school syllabus, the requirement for first-time offenders to attend courses instead of raising penalties and the need for a reduction in the rates of interest and penalties raised by SARS. These initiatives should be considered by SARS and it is recommended that further research into the success and effectiveness of all the initiatives already introduced by SARS be performed.http://www.uj.ac.za/EN/Faculties/ecofin/fininvestman/jef/Pages/home.aspxam201

Tax compliance costs for the small business sector in South Africa — establishing a baseline

This study is part of an international research project (across four countries) which is evaluating and comparing tax compliance costs affecting the small business sector. The primary objective of this empirical study was to measure the tax compliance costs of small businesses in South Africa and to establish a baseline against which future studies and enhancements to the tax system could be measured. The study also differentiated tax compliance activities from core accounting activities in order to identify the managerial benefits of tax compliance. It also investigated whether various South African small business tax concessions are perceived to be achieving their objective of relieving the tax compliance burden. The study, conducted by means of an electronic survey, provided plausible estimates proving that tax compliance costs as well as core accounting costs are regressive with respect to business size, with the compliance burden being heavier for smaller businesses. The perception that managerial benefits exist was also established for the first time in South Africa. Overall, small business tax concessions were perceived as being more complex than useful. A re-evaluation of these concessions or the introduction of a truly simplified tax system for small businesses is considered desirable.https://www.business.unsw.edu.au/research/publications/atax-journalam2016StatisticsTaxatio

Determinants of internal tax compliance costs : evidence from South Africa

Being tax compliant generates costs and these costs affect small business tax compliance behaviour and contribution. This study uses multiple regression analyses to investigate the key drivers of small business’s internal tax compliance costs (hours spent internally on tax compliance activities). This will assist Revenue Services in understanding what factors (determinants) could increase a small business’s internal tax compliance costs and might assist in managing tax compliance behaviour and contribution. The results expose the significant determinants per tax type, enabling a comparison to be made across the different tax types. Overall, turnover is the variable that had the most significant influence on internal tax compliance costs (time) (as opposed to the number of employees, which had a significant effect only on the internal time spent on employees’ tax). The analysis confirmed that there is a higher proportional burden for smaller businesses in respect of internal income tax and employees’ compliance activities.http://www.journals.co.za/content/journalam2016StatisticsTaxatio

An evaluation of tax compliance costs and concessions for small businesses in South Africa – establishing a baseline

This study contributes to the body of knowledge on tax compliance costs to small businesses by pioneering research in South Africa on four fronts. Firstly, the study is the first to comprehensively quantify small business tax compliance costs – establishing a baseline against which future research can be benchmarked. Secondly, the study established that small businesses perceive tax compliance benefits to exist, but found that the respondents were generally unable to quantify them. Thirdly, it evaluated the perceived impact of the major small business tax concessions on the level of tax compliance costs incurred by small businesses. Finally, the study used regression analyses to evaluate the drivers or determinants of internal and external tax compliance costs.Thesis (PhD)--University of Pretroia, 2013lk2014Taxationunrestricte

Tax compliance burden for small businesses : a survey of tax practitioners in South Africa

Small, medium and microenterprises contribute between 30% to 40% of South Africa's gross domestic product and employs 68.2% of the workforce in the private sector. In the agriculture, construction and retail sectors, these businesses employ more than 80% of the total workforce. Taxation and regulation costs for small businesses have been high up on the South African policy agenda in recent years. SARS does not meet any of the intended standards set out in its Service Charter, with the exception of the time it takes to process tax returns and the time (as laid down in the tax law) it takes to respond to an objection. A follow-up report, in preparation, will provide provincial comparisons

Is SARS really empowering the small business?

The vital role small businesses play in stimulating the economic activity, job creation, poverty alleviation and the general upliftment of living standards has been recognized both internationally and in South Africa. In his State of Nation address, President Thabo Mbeki (2006) confirmed the need to expand the Small Medium and Micro Enterprise (SMME) sector. He committed his support to help generate the necessary resources for the development of the SMME sector. He continued by stating: "We will also speed up the consultative process to determine the measures we must take to improve the regulatory climate to facilitate the expansion of this sector".Previously published as The Accountant until Apr 2006, ISSN 16807537. First volume of Professional Accountant published as May 2006, ISSN 1680753

Is SARS really empowering the small business? Effectiveness of Section 12e

As mentioned in our previous article (The Professional Accountant, May 2006) Government is continuously targeting small businesses as future growth and employment generators. Section 72E of the lncome Tax Act provides for a special dispensation applicable to Small Business Corporations.Previously published as The Accountant until Apr 2006, ISSN 16807537. First volume of Professional Accountant published as May 2006, ISSN 1680753

Annual tax compliance costs for small businesses : a survey of tax practitioners in South Africa

This study provides a baseline measurement for annual tax compliance costs for small businesses. An empirical study performed amongst tax practitioners to identify and measure the annual tax compliance costs for small businesses throughout South Africa revealed that R7 030 per annum is the average fee that tax practitioners charge their small business clients to ensure that their tax returns (for four key taxes – income tax, provisional tax, value added tax and employees’ tax) are prepared, completed and submitted as SARS requires. From the perspective of time and cost, preparing, completing and submitting VAT returns takes the longest and costs the most. It is evident that, overall, the compliance costs are regressive: the smaller the business, the heavier the burden

Research findings : the progress of South African Revenue Service on its service quality journey

The South African Revenue Service (SARS) introduced its Service Charter in 2005, to be fully effective from the beginning of the 2008 tax year. The intention of this Charter is to set out specific service delivery targets which SARS aims to achieve. To get an indication of the progress made by the SARS on its service quality journey, firstly a questionnaire was administered with the aim of establishing the perceptions of tax practitioners towards the service quality of specific services mentioned in the Service Charter. Secondly, reforms subsequently introduced by SARS were analysed in relation to the findings of the survey and positive correlations were found