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How changes to South Africa’s VAT affect compliance among small firms

The study found that small business entities are inclined to reduce the VAT liability when there is an increase in the VAT rate. This may possibly be because the entity perceives it to be financially more beneficial to evade taxes when there is an increase in the VAT rate, even if considering the penalties charged if caught cheating (expected utility theory). They do so by overstating purchases rather than under-declaring sales. This leads to an increase in non-compliance and a decrease in tax revenue collection.

Source: theconversation.com

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