Understanding the challenges encountered by small business owners regarding value-added tax compliance

Abstract

Background: South African tax practitioners fulfil a worthwhile advisory role and have unique insights into and emotional responses to the challenges faced by small business owners (SBOs) regarding value-added tax (VAT).

Aim: The study aims to understand the insights of tax practitioners around the challenges encountered by SBOs regarding VAT compliance.

Setting: A combination of face-to-face and online interviews took place with tax practitioners who service SBOs situated in the Gauteng province of South Africa.

Method: The study employed a qualitative research methodology and an interpretivism paradigm. Twenty-two semi-structured interviews were conducted with tax practitioners to gather their insights regarding challenges encountered by SBOs regarding VAT compliance.

Results: Tax practitioners generally argue that SBOs struggle with compliance challenges. There is a lack of understanding regarding the basic principles of the concept of agency for VAT purposes. Operational needs often impel the SBOs to utilise the VAT monies for ongoing business concerns. Accounting for VAT on an invoice basis is difficult for SBOs. Also, at the compulsory VAT registration threshold of R1 million, the SBOs are not ready to handle the VAT compliance burden yet. Lastly, there are negative attitudes towards VAT powered by the view that VAT encompasses constant outflows of cash.

Conclusion: Tax practitioners have important, yet complicated, interlocutor roles in ensuring VAT compliance. There needs to be a collaborative effort from all relevant role players to improve the day-to-day lived experiences regarding VAT compliance of SBOs.

Contribution: The study’s philosophy adds differentiated dimensions around the key challenges facing SBOs regarding VAT compliance with a view towards alleviating these obstacles.