The tax education needs of SME business owners in the construction industry

Abstract

Tax compliance has been brought into sharp focus by SARS and other tax authorities around the world. Non-compliance causes tax leakages and this situation is detrimental to an economy since it is deprived of resources necessary for growth and public infrastructure development. Small- and medium-sized enterprises (SMEs) are recognised for the value they add to growing economies, stimulating economic growth and job creation. Similarly, the construction industry in South Africa and the world over is recognised for its contribution to public infrastructure development and economic growth. The majority of construction companies operating in South Africa are SMEs. SARS is clamping down on SMEs and the construction industry as it has identified these two categories of taxpayers as high-risk groups in terms of tax non-compliance. The structural and operational nature of SMEs presents opportunities for the avoidance of paying tax. On the other hand, they experience complying with tax and other regulations as a heavy burden. SARS's focus on the construction industry is prompted by the fact that it receives state funding, and corruption in the industry has been found to be rife. A substantial number of studies provide evidence that tax education improves compliance. Therefore, the current study investigates the level of tax knowledge and the possible lack of tax knowledge of SME owners in the construction industry in order to determine their tax education needs. The study involved a qualitative analysis in the form of face-to-face, semi-structured interviews with 10 SME owners in the construction industry based in KwaZulu-Natal and Gauteng, South Africa. In the interviews, use was made of structured and open-ended questions. The results confirmed that the owners of very small enterprises had the least amount of tax knowledge whereas the owners of medium-sized entities had the most tax knowledge. Further findings were that most of the entities relied on external tax advisors for tax advice, that the majority of the respondents did not understand the special tax incentives available to SMEs and companies operating in the construction industry and that almost 80% of the respondents believed SARS was not doing enough to educate them about the incentives available. The majority of the respondents felt that improving tax knowledge would improve tax compliance.