Abstract
Being tax compliant generates costs and these costs affect small business tax compliance behaviour and contribution. This study uses multiple regression analyses to investigate the key drivers of small business’s internal tax compliance costs (hours spent internally on tax compliance activities). This will assist Revenue Services in understanding what factors (determinants) could increase a small business’s internal tax compliance costs and might assist in managing tax compliance behaviour and contribution. The results expose the significant determinants per tax type, enabling a comparison to be made across the different tax types. Overall, turnover is the variable that had the most significant influence on internal tax compliance costs (time) (as opposed to the number of employees, which had a significant effect only on the internal time spent on employees’ tax). The analysis confirmed that there is a higher proportional burden for smaller businesses in respect of internal income tax and employees’ compliance activities.
Highlights
The small business sector is recognised as vital for economic growth and job creation (Anyadike-Danes, Bjuggren, Gottschalk, Hölzl, Johansson, Maliranta & Myrann, 2015:822; Killian, Karlinsky, Payne & Arendse, 2007:16; OECD, 2009:22; SBP, 2013:4)
The results are discussed in the following order: Value Added Tax (VAT), income tax, PAYE, capital gains tax (CGT), turnover tax, customs duty and excise duties
The multiple regression analysis performed on the internal hours spent on VAT reveals that the legal form, turnover, use of external service providers and the type of accounting system used had a significant effect on the internal tax compliance costs
Summary
The small business sector is recognised as vital for economic growth and job creation (Anyadike-Danes, Bjuggren, Gottschalk, Hölzl, Johansson, Maliranta & Myrann, 2015:822; Killian, Karlinsky, Payne & Arendse, 2007:16; OECD, 2009:22; SBP, 2013:4). One of the elements of the tax burden is the tax compliance burden – the amount of time and money (compliance costs) spent in order to comply with tax laws (Charron, Chow & Halbesma, 2008:iv; Coolidge, Ilic & Kisunko, 2009:4; Guyton, O’Hare, Stavrianos, & Toder, 2003:676). One of the reasons is that tax compliance costs disincentivise business start-ups, reduce business productivity and diminish business resources, without raising income for the government, resulting in a waste of economic resources and lowering the living standards of a country’s citizens (Charron et al, 2008:iv; Eichfelder & Schorn, 2009:2; OECD, 2010:7). According to Klun and Blazic (2005:419), these costs affect the economic behaviour of both individuals and businesses and seem to be connected to the level of compliance in that they could result in an increase in tax evasion (Erard & Ho, 2003; Sapiei & Kasipillai, 2013)
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