The determinants of tax evasion amongst small and medium - sized enterprises (SMEs): Evidence from Limpopo Province, South Africa

Abstract

Tax evasion presents a major socio-economic obstacle to progress in numerous developing nations. It is widely practiced in South Africa, weakening the government's primary funding source for public spending. This study sought to pinpoint the primary factors that impact tax evasion in Small and Medium-Sized Enterprises located in Limpopo Province, South Africa. A Likert-scale survey gathered information from 210 small and medium-sized enterprises in Limpopo Province. Several statistical analyses were utilised, and data were analysed using STATA version 17. The study findings revealed that the key factors contributing to tax evasion are the likelihood of being caught, the tax rate setup, high tax rates, perceived unfairness in taxes, the intricacy of the tax system, fiscal inequality, and the absence of moral responsibility. The OLS regression analysis found meaningful positive relationships between tax evasion and factors like the likelihood of detection, the layout of the tax rate schedule, perceived fairness of taxes, and fiscal inequality. Furthermore, there were significant negative relationships between high tax rates and moral obligation with tax evasion. In contrast, the tax system had a positive relationship that was not statistically significant. These results provide an essential understanding for the South African Revenue Service, the government, and researchers. The outcomes can guide the creation of policies to address disparities in the tax system, leading to a decrease in tax evasion and an enhancement in revenue collection within the Limpopo Province.