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

Abstract

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.