Navigating Tax Policies for Sustainable SMEs: Challenges and Opportunities in Tax Compliance

Small and Medium Enterprises (SMEs) are critical to South Africa’s economy, contributing to employment, GDP, and government revenue. Despite their importance, SMEs face high failure rates, with tax-related challenges identified as a key barrier to sustainability and growth. This study examined the effects of tax policies both problematic and beneficial on SMEs’ tax compliance behaviour, focusing on owners’ perceptions of the regulatory environment. A quantitative research design was employed, using a self-administered questionnaire distributed via email to a sample of 346 SMEs. Descriptive statistics, factor analysis, and linear regression were used to analyse the data. The findings reveal that while SMEs generally register, file returns, and pay taxes within prescribed deadlines, their understanding of tax legislation is limited to basic concepts. Many SMEs lack knowledge of income tax rules, computation of liabilities, and penalties for non-compliance, contributing to negative attitudes toward the tax system. Factor analysis confirmed limited tax literacy, and regression analysis indicated that perceived benefits of compliance such as improved record-keeping, better financial awareness, and reduced audit risk are positively associated with higher compliance levels. There is also a marginal relationship with OP_K, indicating that lack of knowledge is associated with decreased compliance (p = .054). The study provides valuable insights for policymakers, tax authorities, and practitioners seeking to improve SME compliance through targeted education, simplified policies, and effective interventions. By incorporating SMEs’ perspectives, this research contributes to the literature on tax policy and compliance behaviour, highlighting the importance of knowledge, attitudes, and perceived benefits in shaping compliance outcomes within South Africa’s SME sector.

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Publication Details

Journal
International Journal of Sustainability in Business and Economics
Published
2026-11-01
DOI
https://doi.org/10.51137/wrp.ijsbe.922
Primary Topic
Taxation and Compliance Studies
Type
article
Field-Weighted Citation Impact
0.00
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article

Navigating Tax Policies for Sustainable SMEs: Challenges and Opportunities in Tax Compliance

Masibulele Phesa, Lungisani Lucky Buthelezi
International Journal of Sustainability in Business and Economics
Taxation and Compliance Studies
article

Navigating Tax Policies for Sustainable SMEs: Challenges and Opportunities in Tax Compliance

Masibulele Phesa, Lungisani Lucky Buthelezi
article en

Abstract

Small and Medium Enterprises (SMEs) are critical to South Africa’s economy, contributing to employment, GDP, and government revenue. Despite their importance, SMEs face high failure rates, with tax-related challenges identified as a key barrier to sustainability and growth. This study examined the effects of tax policies both problematic and beneficial on SMEs’ tax compliance behaviour, focusing on owners’ perceptions of the regulatory environment. A quantitative research design was employed, using a self-administered questionnaire distributed via email to a sample of 346 SMEs. Descriptive statistics, factor analysis, and linear regression were used to analyse the data. The findings reveal that while SMEs generally register, file returns, and pay taxes within prescribed deadlines, their understanding of tax legislation is limited to basic concepts. Many SMEs lack knowledge of income tax rules, computation of liabilities, and penalties for non-compliance, contributing to negative attitudes toward the tax system. Factor analysis confirmed limited tax literacy, and regression analysis indicated that perceived benefits of compliance such as improved record-keeping, better financial awareness, and reduced audit risk are positively associated with higher compliance levels. There is also a marginal relationship with OP_K, indicating that lack of knowledge is associated with decreased compliance (p = .054). The study provides valuable insights for policymakers, tax authorities, and practitioners seeking to improve SME compliance through targeted education, simplified policies, and effective interventions. By incorporating SMEs’ perspectives, this research contributes to the literature on tax policy and compliance behaviour, highlighting the importance of knowledge, attitudes, and perceived benefits in shaping compliance outcomes within South Africa’s SME sector.

International Journal of Sustainability in Business and EconomicsVol. 2(9)
University of KwaZulu-Natal (ZA)
Openalex Percentile: Top 8%
Taxation and Compliance Studies
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