Factors influencing tax compliance of small and medium-sized enterprises in the Durban area

Abstract

It is globally recognised that small and medium-sized enterprises (SMEs) play a significant role in improving a country’s economic growth and creating jobs. It is, therefore, in the public interest and in the interests of government to support SMEs. The South African government has recognised and focused on the improvement of SMEs as one of its strategic objectives. Regardless of the significance of SMEs for the country and region, there are numerous difficulties that SMEs face. Therefore, this study was conducted to evaluate factors that influence tax compliance of SMEs in the Durban area, located in KwaZulu-Natal, South Africa. The gravest and tedious difficulty is guaranteeing tax compliance. Taxation is an important source of funding for the government's construction programmes. For many tax authorities, tax compliance is a major concern, and persuading SMEs to comply with tax provisions, particularly as tax laws are often not precise, is a challenging task. South African Revenue Services (SARS) estimates a South African tax gap of R 300 billion per tax year, and also about 40% of local enterprises are not registered for tax purposes in South Africa. This study employed a quantitative research approach to obtain data from 146 SMEs operating in the Durban area. A total of 230 questionnaires were distributed to SMEs located in Clermont, Morningside, Umgeni, Durban Central and Phoenix, with 157 questionnaires returned. However, only 146 questionnaires were usable. The research outcome revealed that participants’ level of education impacts tax compliance, and there is a positive relationship between the tax compliance costs and tax compliance. Attention was drawn to the impact on non-compliance due to complex tax filing and high tax rates. Furthermore, the study indicated that the continuous granting of tax amnesties demotivates compliant taxpayers. The research recommended that the South African government consider reviewing the tax rates and compliance costs and reduce noncompliance by SMEs by improving tax awareness campaigns.