A discussion of the tax burden on SMEs in South Africa

Abstract

Small and medium-sized enterprises (SMEs) contribute to the GDP and aid in job creation and are thus vital to the economy as well as being a key factor in the business sector with regard to the high rate of unemployment. Despite its importance, the SME business sector has a high failure rate; most previous research studies have, inter alia, identified tax-related issues as a reason for this. The significance of SMEs to the South African economy suggests that they should be able to function in the simplest way possible, with minimal obstacles to growth. The South African Revenue Service (SARS) has attempted to simplify the tax requirements of smaller businesses, but many SMEs still fall outside of this net, requiring them to conduct their tax affairs in a manner similar to larger entities, making tax compliance a burden to SMEs. This study attempts to provide insight as to why tax compliance is seen as more of a burden to SMEs than larger or listed entities.