SMMEs’ business mindset on tax compliance in North West: Perceptions and challenges

Background: The economic development of South Africa heavily relies on small, medium and micro-enterprises (SMMEs), which face significant difficulties in meeting tax obligations because of their perceived complexity of regulations and a decline in trust towards government institutions. Aim: This study seeks to identify the fundamental motivations behind both adherence and resistance to tax regulations by SMME owners and managing directors in the North West Province of South Africa. Setting: The research concentrated on owners and managing directors of SMMEs located in the North West province of South Africa. Methods: This study adopts a qualitative phenomenological lens, utilising semi-structured interviews to highlight the lived experiences of eight stakeholders within the SMME sector. Data analysis employed thematic analysis techniques to identify recurring patterns and themes. Results: Five primary themes emerged from the analysis: compliance motivators and strategies, systemic challenges stemming from knowledge gaps and communication deficits, government perception, resource limitations and compliance costs and enforcement effectiveness. The findings revealed that deterrence factors, such as penalties and imprisonment, rather than moral obligations, primarily drove tax compliance. The complexity of tax systems, inadequate communication from authorities and perceived governmental inefficiencies significantly impacted compliance behaviours. Conclusion: Fostering voluntary tax compliance among SMMEs necessitates the enhancement of tax education, the improvement of communication with authorities and the resolution of perceived inefficiencies within government operations. Contribution: The research enhances the understanding of elements influencing tax compliance among SMMEs in the North West province of South Africa, offering practical recommendations for policymakers and tax authorities to improve compliance strategies while supporting small business development.