The Influence of Penalties on the Tax Compliance Behaviour of Small Business Owners

Mphagahlele Ndlovu; Danie Schutte

doi:10.25159/1998-8125/12573

Authors

Mphagahlele Ndlovu University of South Africa https://orcid.org/0000-0003-4850-8834
Danie Schutte North-West University https://orcid.org/0000-0001-7283-247X

DOI:

https://doi.org/10.25159/1998-8125/12573

Keywords:

interpretive phenomenology, small business owners, small and medium enterprise taxation, South Africa, tax penalty

Abstract

Purpose: The purpose of this study was to investigate the influence of penalties on the tax compliance behaviour of small business owners.

Research design: This study employed a qualitative research approach. An interpretive phenomenological research approach underpinned the study design. The study utilised semi-structured interviews to explore the lived experiences of small business owners in Gauteng, which is the business hub of South Africa.

Findings: The findings indicate that to an extent, penalties do encourage small business owners to pay taxes on time. However, the charging of substantial penalties has the potential to discourage small business owners from registering at all for taxes. Furthermore, non-compliance is often a result of cash flow challenges, in which case the penalties become an unavoidable cost of doing business. A lack of skills and basic tax knowledge lead to unintentional non-compliance; therefore, the penalties must be accompanied by training, awareness and education.

Originality/Value: There are conflicting results on the influence of penalties on tax compliance behaviour in the literature. This study contributes to the body of knowledge by adding a South African small business perspective. Furthermore, the qualitative approach applied in this study adds to the body of knowledge and provides original contextual descriptions of the lived experiences regarding the influence of penalties on the tax compliance phenomenon.

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