Age: Kastlunger et al. (2010:543) report that empirical studies consistently found a positive relationship between age and tax compliance. Older people tend to have a more positive attitude towards tax compliance (Braithwaite, Reinhart & Smart 2010:257; Kirchler 2007:157).

Gender: A study using decision-making experiments Kastlunger et al. (2010:549) found that women and men differ regarding their taxpaying strategies and that women are more compliant than men. Their review of previous studies also reveals that women are more compliant than men, but they do point out that there are inconsistencies in empirical studies in this regard.

Fairness perceptions: Torgler (2003:22) suggests that the tax compliance literature has effectively exhibited that taxpayers’ perceptions of fairness affect their willingness to pay taxes. Taxpayers’ perceptions of fairness may be discernible as three components, namely:

Tax morale: Torgler (2003:81) defines tax morale as the individual’s willingness to comply, or stated differently, the intrinsic motivation to comply. Cummings et al. (2008) add that this intrinsic motivation arises from the moral obligation to pay taxes or the belief in contributing to society by paying taxes. Tyler (2006:313) submits that an internalised obligation is a characteristic of voluntary compliance and is derived from a person’s desire to behave according to his or her own sense of personal morality.

Kamleitner et al. (2012:335) suggest that there are two facets of ‘perceived opportunity’. Firstly, there could be specific circumstances leading to opportunities to evade. They suggest that opportunities usually come about when tax filings are not entirely automated, resulting not only in more room for errors (unintended non-compliance) but also more opportunities for intended non-compliance.

Secondly, people can only capitalise on opportunities if they actually recognise them. It is submitted that unless a taxpayer knows the tax legislation and procedures well, many opportunities may remain unnoticed.

It is proposed that small business owners’ level of tax knowledge will, in part, determine their ability to understand and cope with the administrative and legal requirements of revenue bodies. Thus, higher levels of tax knowledge should make it easier to comply. Kamleitner et al. (2012:336–337) provide evidence on non-compliance as a result of the complexity of reporting and returning requirements.

It would also appear that the type of tax knowledge (noted as legal and procedural knowledge by Kamleitner et al. 2012:337)) is an important factor in small business owners’ tax compliance, and lack of such knowledge may be an obstacle for even those willing to comply (Langham, Paulsen & Hartel 2012:388).

Many small business owners deal with such tax knowledge deficiencies by employing the help of tax practitioners.

Small business owners pay taxes out of their own pocket, in contrast to employed taxpayers whose income tax is normally withheld at source. This represents a ‘loss frame’. Kamleitner et al. (2012:338) refer to prospect theory to exhibit that ‘the perceived pain of a loss is greater than the perceived pain caused by an equally sized non-gain’. They suggest that tax non-compliance could be a consequence of this loss frame (because of the painful experience of having to pay tax).

Kamleitner et al. (2012:338) also refer to ‘mental accounting’ to explain why small business owners may apply the loss frame. In this context, mental accounting means to keep book of different streams of income in different mental accounts, thereby being mindful that taxes due are not part of your income. If taxes are not perceived as different from other streams of income, paying taxes is experienced as a loss.

A further decision frame noted by Kamleitner et al. (2012:339) is based on reactance theory and suggests that ‘paying taxes can be perceived as a reduction of one’s own financial resources and as a limitation of one’s financial freedom’. This is in accordance with the experience of tax payments as out of pocket losses.

Three factors are pointed out as considered relevant to the present study, namely industry type, business size and group norms.

Industry: Tax authorities have singled out certain industries that pose a greater risk of being non-compliant. Research performed by the CATA across 17 countries indicates that firms in the building and construction industries, self-employed and contractors, taxi and transport drivers and real estate firms are most likely to engage in tax evasion and avoidance behaviours (The Commonwealth Association of Tax Administrators 2006:8). These are also industries that are more likely to operate in a cash-based environment. Coolidge and Ilic (2009:27) further propose that businesses belonging to industries where registration with a business association is expected are more likely to register for tax.

Business size: Yusof, Ling and Wah (2014:217–220) present evidence from several studies, suggesting that larger firms are more compliant than smaller firms. Their own study with 375 tax-audit cases in Malaysia confirms this and they propose that better internal control, proper accounting systems and better corporate governance play a role in larger firms being more tax compliant.

Group norms on tax compliance (social norm): Kornhauser’s (2007) literature review on normative and cognitive aspects of tax compliance confirms that social norms are a factor influencing tax compliance.

Social norms can be described as the shared beliefs concerning the manner in which people should behave (Kornhauser 2007). This suggests that the tax compliance decision is also made with reference to the norms and observed behaviour of the general society in which taxpayers find themselves (Hashimzade et al. 2014:141; Wallschutzky 1985:380).

A recent meta-analysis of survey studies on the strength of the impact on compliance of demographic factors such as age, gender, education, and income from 111 countries published between 1958 and 2012 (Hofmann et al. 2017:65) serves as a credible source against which some of the findings in Table 1 can be interpreted. In respect of age and gender, the meta-analysis found a rather small but significant relation between the age of taxpayers and their tax compliance as well as between gender and tax compliance. ‘The older taxpayers are, the more they tend to comply with tax law’, and ‘females tend to comply with tax law more than men’ (Hofmann et al. 2017:66). In addition, Kirchler (2007:157) reports that attitudes towards tax become more favourable as taxpayers age and Braithwaite et al. (2010) provide further empirical evidence that younger taxpayers are, in fact, less compliant than older taxpayers.

With the majority of the guest house owners in the present study being over 50 years of age, it would appear that this population may have a positive attitude towards tax (which was, in fact, confirmed by the positive results on their tax morale).

Attention is drawn again to the meta-analysis referred to above which found that women tend to be more tax compliant than men. Although Kastlunger et al. (2010:543) point out that there are inconsistencies in empirical studies on the level of compliance by male and female taxpayers, their experimental study conducted found that women are more compliant than men. However, a South African study found significant differences between the levels of income tax compliance for male and female business owners – with male participants being more likely to be tax compliant (Pretorius 2015). (It must be noted that Pretorius’ study only tested for ‘registration’ compliance.)

Although it appears that gender does not play a major role as a factor of tax compliance and empirical studies render inconsistent results, it is noted in the present study that the majority of the guest house owners are women, which may imply a greater prospect of compliance.

‘A high level of fairness perception should enhance trust in authorities and it should, finally, result in a higher level of tax compliance’ (Casal et al. 2016:142). Murphy (2005:564) cites several empirical studies that indicate how being treated in a fair manner results in the higher trust in authorities by taxpayers, which consequently has the effect that taxpayers will be more inclined to comply with tax laws. Also, see studies supporting this finding by Levi, Tyler and Sacks (2008:24–25), Beers et al. (2012:70) and Hartl et al. (2015:14). Furthermore, a survey conducted amongst tax avoiders (Murphy 2004:206) found that taxpayers who experienced poor treatment from a tax authority as a result of their infractions (innocent or otherwise) displayed a decrease in trust in the authority which could ultimately result in resistance towards the tax authority.

In the present study, responses were mostly evenly spread on the issues of fairness of tax laws; the manner in which the tax authorities use their powers to enact the laws; and perceptions on fairness of income distribution. Perceptions by the respondents on fairness considerations were not overly favourable towards tax compliance. It would thus appear that fairness perception is an area of concern and may pose a risk for the tax compliance behaviour of this population of guest house owners.

This may be an even bigger concern in the current political climate in SA, given the fact that the President of SA, Cyril Ramaphosa, suspended the SARS commissioner in March 2018 as a result of a loss confidence in the commissioner’s ability to lead SARS (The Presidency 2018). In addition, a Commission of Inquiry into tax administration and governance at the SARS (the Nugent Commission) was appointed by the President in May 2018 (The Presidency 2018). The commission has, to date, heard evidence of financial misconduct at the tax service from SARS employees, the office of the Tax Ombud and senior officials of National Treasury. This inquiry may not only negatively impact taxpayers’ perception of SARS officials’ ability to correctly administer tax assessment and collections, but may also raise the question if all taxes collected are correctly recorded and channelled to Treasury for fair distribution.

Torgler, Schneider and Schaltegger (2010:3) mention that many researchers have studied the effect of tax morale on tax compliance (empirically and through experiments) and further propose that policy makers are increasingly interested in understanding the driving forces of tax morale as a factor influencing tax compliance. Torgler (2003:106–113) reports on empirical evidence, predicting that tax morale has a significant impact on tax compliance – higher tax morale strongly correlates with greater tax compliance.

Accordingly, Braithwaite et al. (2010) submit in their study that the lower levels of compliance are largely because of a significantly lower tax morale. Williams and Horodnic’s (2015:94) empirical study further confirms that the lower the tax morale, the greater is the likelihood to participate in the shadow economy (both at the individual, population group and country level).

The results in Table 1 signify a high tax morale for the population under study and it is a favourable indication of tax-compliant behaviour. It means that the population has an intrinsic willingness to pay their taxes.

However, it may be that the tax morale of South Africans is under threat. Although South Africans have mostly been praised for their high tax morale in previous years (see SARS annual reports), concerns about a tax slippage have been expressed recently by Finance Minister Nhlanhla Nene (National Treasury 2018) as well as by SARS Head of Revenue and Research, Randall Carolissen, at the launch of the Tax Statistics 2017 publication (South African Government News Agency 2017). Meanwhile, SARS acting commissioner Mark Kingon said that ‘compliance is of deep concern to SARS’ (Business Day 2018). National Treasury (2018) and SARS (2016b) further claim that taxpayer morality has been eroded in recent years because of corruption and wasteful expenditure in the public sector. This leads to a dent in the social contract between taxpayers and the state because of a lack of timely government response to allegations of corruption and poor governance.

The CATA study on tax evasion and avoidance in member countries points out that the most attractive method of non-compliance by small businesses is under reporting of income and overstatement of deductions (The Commonwealth Association of Tax Administrators 2006:8). This is achieved by accounting misdeeds and failure to keep adequate records. Given the fact that the population under study expressed a lack of knowledge in understanding which expenses are deductible for tax purposes, it must be argued that this type of non-compliance may be because of error rather than intent. Their lack of knowledge may, in fact, deter the recognition of opportunities to evade tax. Further to this, many transactions in a guest house context may take place on a cash basis (for example, guests paying in cash for the accommodation and/or meals). This opens up the opportunity for the under reporting of income.

Even though the results from the analysis did not provide conclusive evidence, it is submitted that, based on the high probability of error and prospects for cash transactions, opportunities for non-compliance (especially through accounting misdeeds) should be regarded as a high-risk factor for this population.

Tax knowledge is an important element of the self-assessment system of taxation and has been shown to have a positive effect on compliance behaviour (Fjeldstad & Heggstad 2012; Hofmann, Hoelzl & Kirchler 2008; Kamleitner et al. 2012; Niemirowski, Baldwin & Wearing 2002; Palil 2010; Mansor, Saad & Ibrahim 2004). Langham et al. (2012:364) found that when legal complexities and jargon create difficulty, ‘awareness of the rules’ is a better predictor of compliance than intention. Langham et al. (2012:387) further argue that ‘complexity and obstacles to performance prevent even the most willing from complying’ and Beers et al. (2012:66) opine that taxpayers ‘may use complexity as a reason to justify noncompliance’.

It is evident from the results displayed in Table 3 that the respondents doubt their ability to understand and apply tax legislation correctly. It is also evident that they are more concerned with the procedural aspects (filling in the tax forms, record keeping, getting assistance from the tax office) than understanding the legislation. Most of the respondents employ tax practitioners for this purpose, but they do express a need to understand the procedures themselves. This is a positive result indicating their ‘awareness of the rules’.

However, it is submitted that the factor ‘tax knowledge requirements’ appears to pose a risk of non-compliance for this population because inadequate knowledge may lead to unintentional errors.

It can be presumed that this population regards paying taxes from a ‘loss frame’ because taxes are paid out of pocket. Although prospect theory suggests that people are more risk seeking in the loss domain than in the gain domain (Kamleitner et al. 2012:338), there is no evidence that any of the respondents actively seek (illegal) ways to reduce their tax burden. On the contrary, Ramutumbu (2016) concludes in her survey of the guest house owners that this population reveals a ‘willingness to be tax compliant’.

The results in Table 4 further imply that in terms of ‘mental accounting’, it appears that the repondents are mindful of the payment of their taxes and some may keep a separate mental account. However, from further analysis of their responses, it can be concluded that a large number of them experience difficulties in keeping record of and reporting on their tax obligation. It is noted in the results displayed in Table 4 that respondents perceive taxes as depriving their businesses of much needed funds. This may suggest a decision frame of ‘limitation of freedom’. Kamleitner et al. (2012:339) refer to studies conducted by Kirchler which perceived mixed results in the link between perceived limitation of freedom and hypothetical tax evasion.

The population under study may be a high-risk group in terms of the way the tax decision is framed. Yet, it is submitted that there is little evidence that the ‘loss frame’ or ‘perception of limitation of freedom’ influences these taxpayers’ compliance decision. It is suggested that future research could investigate typical decision frames of small business owners from various industries and examine the link with their tax compliance behaviour.

An interesting perspective on ‘decision frame’ may be derived from the findings of Coolidge and Ilic’s (2009:28) analysis on perceived advantages and disadvantages of registering for tax. Their results indicate that reasons of perceived advantages such as ‘better access to government services’, ‘being legal’, ‘access to and price of financing’ and ‘better opportunities for business growth’ are strongly associated with the likelihood of registering with tax. It is proposed that a decision frame of ‘perceived advantages’ may positively be associated with tax compliance, but one should also be mindful that the cost of compliance does not outweigh such benefits.

The OECD recognises that some industries may have norms and practices for taxpayers that favour non-compliance (OECD 2012:12). Yusof et al. (2014:230) confirm that ‘types of industry’ are one of the main factors influencing compliance behaviour of small- and medium-sized corporations in Malaysia. In line with an earlier statement made in the literature review section of the present study, their study found that the service and construction industries are more non-compliant as compared to other industries. They also cite an earlier study by Chan and Mo who found the service-oriented industry to be less compliant. If one classifies guest houses as belonging to the ‘service industry’, it would appear that this type of business falls in a high-risk category for non-compliance. Moreover, guest houses could be inclined to operate on a cash basis with the possibility of limited supporting documents to be generated.

On the other hand, Coolidge and Ilic (2009:27) suggest that registration with a business association increases the likelihood of tax registration. If these guest houses could register with the South African Tourism Council for the benefit of being graded and to enhance their visibility especially to foreign tourists, it may improve their prospects of being tax compliant. It can thus be concluded that although this specific population falls within the high-risk industry especially because of the strong probability of operating on a cash basis, their association with the Tourism Council may mitigate this risk.

According to Yusof et al. (2014:231), larger firms are more compliant than smaller firms. Informal firms with more employees also appear more likely to register for tax (Coolidge & Ilic 2009:8). The OECD observes that the limited size of an SMME may constrain administrative capacity and specialised competencies (for example, regarding tax issues) (OECD 2012:10).

The majority of the businesses in the survey can be regarded as small (employing fewer than five people). This factor therefore increases the risk for non-compliance of these guest house owners.

The shared beliefs about how members of a group should behave (social norms) may regulate the behaviour of the individual especially if the individual identifies strongly with the group (Wenzel 2005:504). Coolidge and Ilic (2009:28) propose that businesses not likely to register (or are neutral towards tax registration) perceive that a significantly high share of businesses ‘similar to’ themselves is not paying taxes ‘at all’.

Fjeldstad, Schulz-Herzenberg and Sjursen (2012) also maintain that trust in other citizens to pay their share seems to be an important factor in tax-compliant behaviour. Other studies supporting a similar supposition are those of Beers et al. (2012:76), Cullis, Jones and Savoia (2012:165), Bobek, Roberts and Sweeney (2007:61) and Wenzel (2005:505).

Considering the results presented in Table 5 where it is posited that many respondents opted for ‘no opinion’ when asked about their perception of other small businesses’ tax compliance, it can be advanced that this factor does not appear to exert a strong influence on their tax-compliant behaviour. It may be that the guest house owners do not identify strongly with other entrepreneurs in the same industry because there is no real connection between them in the form of belonging to an association or industry body. A report on entrepreneurship in SA suggests that cultural and social norms are significant factors that may impact on entrepreneurial intentions (Herrington, Kew & Mwanga 2017), but (to the knowledge of the authors) no large-scale survey has been undertaken in SA to analyse the impact that cultural and social norms may have on tax compliance intentions.

Based on the literature referred to above and the inconclusive results as presented in Table 5, the authors of the present article are undecided about ‘social norms’ as an indicator of risk of non-compliance in the population under study.