This is surprising taking into account the economic importance of the business

This is surprising taking into account the economic

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attention. This is surprising taking into account the economic importance of the business sector and the importance of business taxation for the tax administration. Work in this area is therefore highly relevant” (p. 57). With the above comments from Torgler (2007), research has proven that SMEs evade VAT or Goods and Services Tax (GST) in France and Netherlands (Agha & Haughton, 1996), the United Kingdom (Adams & Webley, 2001), the United States (Joulfaian & Rider, 1998), New Zealand (Noble, 2000) and Australia (Bajada, 2002). In addition, they also evade income taxes from cash jobs in the hairdressing industry (Ashby & Webley, 2008), the building industry (Sigala, Burgoyne, & Webley, 1999), home maintenance, home-based services, teaching, entertainment (Cash Economy Task Force, 2003; Noble, 2000), retailing and direct selling (S. Morse et al., 2009), and the food industry (Adams & Webley, 2001).
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16 Even though cash jobs are illegal, many small business operators are aware of or have undertaken these practices (Ashby & Webley, 2008; Coleman & Freeman, 1994; Noble, 2000). They do not view cash jobs as committing serious offence (Devos, 2006; Reinhart et al., 2004) and the probability of getting caught is low due to the insignificant per item transactional value (Braithwaite, Reinhart, & Job, 2005; Noble, 2000). Other common business practices to evade taxes include bartering and overstating business expenses (Ashby & Webley, 2008; Coleman & Freeman, 1994; S. Morse et al., 2009). Consequently, the compliance of SMEs was considered lower than wage and salary taxpayers (Ahmed & Braithwaite, 2005; Giles & Caragata, 1999; Kirchler, 1999). 2.3.2 Ethnicity and tax evasion Though SMEs in various industry groups participate in the cash economy, little is known about the ethnicity of SME operators and tax evasion. An Australian focus group research showed that tax evasion is endemic among SMEs, regardless of ethnicity, as “tax evasion has become embedded in the daily working attitudes and practices of most small business owners, regardless of ethnicity” (Rothengatter, 2005a, p. 305). Bajada (2002) claims that cash economy activities have been entrenched in the psyche and working ethos of individuals and SMEs. Given the little attention paid to ethnicity of SME operators and their engagement in cash jobs, it would be worthwhile gathering empirical evidence on their perceptions and participation in these activities as they affect the amount of tax liabilities and the risk associated with getting caught. Other research studying ethnicity and tax evasion attitudes has differentiated between whites and non-whites as proxy variables for ethnicity (Roth, Scholz, & Witte, 1989; Song & Yarbrough, 1978). Whites are found to be more compliant and show greater commitment towards paying taxes than non-whites. Research also shows a positive correlation between lower compliance rates and the proportion of non-whites in the United States communities (Beron, Tauchen, & Witte, 1992; Li, 2010). Given the data limitations of whites and non-whites, ethnicity needs to be broken down further to gain a better understanding of how different ethnic groups make tax decisions. This is
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  • Fall '16
  • tax compliance, SME Operators

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