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This study provides a baseline measurement for annual tax compliance costs for small businesses. An empirical study performed amongst tax practitioners to identify and measure the annual tax compliance costs for small businesses throughout South Africa revealed that R7 030 per annum is the average fee that tax practitioners charge their small business clients to ensure that their tax returns (for four key taxes – income tax, provisional tax, value added tax and employees’ tax) are prepared, completed and submitted as SARS requires. From the perspective of time and cost, preparing, completing and submitting VAT returns takes the longest and costs the most. It is evident that, overall, the compliance costs are regressive: the smaller the business, the heavier the burden.

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Small businesses have the potential to grow the economy, generate jobs and reduce poverty, but they face many constraints including high tax compliance costs and burdens. A comparison of the findings and recommendations made in small business tax compliance cost studies conducted in South Africa with initiatives introduced by the South African Revenue Service (SARS), substantiated by consultations with a SARS and a South African Institute of Chartered Accountants official, reveals that SARS has, in most cases, attempted to address the tax compliance burdens identified in these studies. However, SARS has only partially addressed the complexity of the tax law, the lack of software to assist small businesses with their record-keeping and the compliance burden associated with provisional tax. SARS has failed to address the need for a threshold below which no small business tax return is required to be submitted, the inclusion of tax in the school syllabus, the requirement for first-time offenders to attend courses instead of raising penalties and the need for a reduction in the rates of interest and penalties raised by SARS. These initiatives should be considered by SARS and it is recommended that further research into the success and effectiveness of all the initiatives already introduced by SARS be performed.

Being tax compliant generates costs and these costs affect small business tax compliance behaviour and contribution. This study uses multiple regression analyses to investigate the key drivers of small business's internal tax compliance costs (hours spent internally on tax compliance activities). This will assist Revenue Services in understanding what factors (determinants) could increase a small business's internal tax compliance costs and might assist in managing tax compliance behaviour and contribution. The results expose the significant determinants per tax type, enabling a comparison to be made across the different tax types. Overall, turnover is the variable that had the most significant influence on internal tax compliance costs (time) (as opposed to the number of employees, which had a significant effect only on the internal time spent on employees' tax). The analysis confirmed that there is a higher proportional burden for smaller businesses in respect of internal income tax and employees' compliance activities.