VAT compliance challenges among SMEs : evidence from Saudi Arabia

Abstract

Purpose: The study addressed Value Added Tax compliance challenges facing small and medium enterprises in Saudi Arabia and rank these challenges based on their relative impacts. The research addressed four major challenges: the complexity of VAT system design, lack of VAT knowledge of taxpayers, high compliance cost, and multiple fines and audits.

Methodology: A survey research design was employed to collect relevant data from SMEs using a self-designed questionnaire, which was sent to 200 enterprises of which 97 was returned.

Findings: Results revealed that out of the four challenges, imposing rigorous fines was the most VAT compliance challenge facing SMEs, and compliance cost was the least. The study showed that equipping taxpayers with adequate tax knowledge and proper education reduces compliance costs and fines and increases compliance.

Originality/Value: The study contributed to the understanding of the VAT system and possible mediation of challenges that enhance the level of VAT compliance. It is hoped that the forwarded recommendations can be helpful for researchers and policymakers investigating the implications of VAT and the enhancement of compliance.