The tax compliance burden in the functioning of small and medium-sized enterprises in the Durban Central Business District

Abstract

Several attempts have been made to examine the effect of tax compliance burden in the functioning of small and medium-sized enterprises (SMEs) but to date, tax compliance is still a constraint in the functioning of SMEs. The purpose of this research was to evaluate the tax compliance burden in the functioning of SMEs in the Durban Central Business District. The study examined the effect of tax compliance burden using a quantitative method, with data collected via questionnaires from SMEs and tax practitioners in the Durban Central Business District. The latest version of the Statistical Package for Social Sciences V1.0.0.1406 was used to analyse the results. The study found that SMEs and tax practitioners both agreed that the tax compliance burden has a significant impact on the failure, performance, and growth of SMEs. They also agreed that high tax rates encourage noncompliance with tax laws, leading to SMEs concealing profits and a significant number of SMEs remaining in the informal sector. The analysis revealed that almost all the SMEs had never received any tax training and that SMEs rely on the services of tax practitioners to be tax compliant. SMEs and tax practitioners agreed that being tax compliant benefits SMEs. Low tax rates, electronic filing and payment of taxes, and government payments to tax practitioners to provide free services to SMEs in tax filing and record keeping are all very important in lowering tax compliance costs, as is frequent tax education, with practical and simplified tax laws. These results demonstrate that tax compliance burden is a constraint in the functioning of SMEs. The study recommends that the South African Revenue Service assists SMEs in reducing their tax compliance burden by increasing tax education and tax incentives for SMEs, paying tax practitioners to provide free services to SMEs or by assigning a tax practitioner to an SME for its first five years of operations.