Abstract
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.
Highlights
1.1 BackgroundGovernments all over the world recognise that small businesses are economically very important
It was established that the majority (53 per cent) of the respondents providing professional services related to taxation matters for individuals and businesses in South Africa were registered with South African Institute of Chartered Accountants (SAICA), whereas 43 per cent were registered with South African Institute of Professional Accountants (SAIPA) and 4 per cent with South African Institute of Certified Bookkeepers (SAICB)
This study is the first of its kind to attempt an estimate of the tax compliance costs for all small businesses in South Africa
Summary
Governments all over the world recognise that small businesses are economically very important. Business expansion in South Africa is clearly highly desirable, but regulations and red tape are reported to be the greatest constraint to such expansion (Grant Thornton, 2006: 1-2) International research in this field shows that tax regulatory compliance costs make up a significant portion of the total regulatory cost (Evans, 2003: 68). Several other patterns have emerged in various local and international studies; among the most important is that tax compliance costs constitute a much larger proportion of total compliance costs for smaller firms than for large ones (SBP, 2005: 42; Upstart Business Strategies CC, 2004: 7) In his 2005 Budget Speech, Finance Minister Trevor Manuel (2005: 28) pointed out that regulatory costs relating to small businesses and taxation had been raised, and he commented as follows:. As discussed and agreed with SARS and the National Treasury, the turnover limit for a business to qualify as a small business for the purposes of this study was a turnover of less than R14 million
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