Abstract
This study explores the cognitive decision-making process of small and medium-sized enterprise (SME) owners in the construction, restaurant, and café sectors of South Africa. These sectors were assessed because they are more susceptible to participating in tax avoidance and evasion activities. SME owners are often described as individuals influenced by their psychological and rational perception of taxation. Hence, understanding the intricate cognitive processes that influence how SME owners perceive and comply with tax laws is necessary in a modern tax compliance environment. This study aimed to investigate the cognitive decision-making process of the SME owner concerning acting in a tax-compliant manner in South Africa through the lenses of thinking automatically, thinking with mental models, and decision frames. The study considered the influence of these constructs on the SME owners’ tax compliance decision-making process and developed a cognitive decision-making framework for SME owners.
The study followed a quantitative research approach that involved collecting data through self-administered questionnaires obtained via an online survey. The sample population consisted of 153 SME owners in the construction, restaurant, and café sectors of the Johannesburg metropolitan area. The study utilised a probability sampling technique (cluster sampling) to select the participants. The study was descriptive, and the data collected was analysed using Statistical Package for the Social Sciences (SPSS) version 29. The researcher conducted exploratory factor analysis, a reliability test, multiple regression, and correlation analysis.
The overall descriptive result shows that SME owners’ perception and cognitive responses towards tax compliance influence their tax compliance decisions in South Africa. A positive statistical significance was discovered between thinking automatically, confirmation bias, and mental accounting with tax compliance. The findings show that automatic thinking can enhance tax compliance, aligning with dual-process theories that emphasise the significance of habitual cognition in routine decision-making. Mental accounting practices, the cognitive strategies that involve segregating financial resources, support compliance when SME owners specifically allocate funds for tax purposes mentally. Similarly, confirmation bias, where individuals rely on established beliefs rather than objective information, can reduce compliance by reinforcing misconceptions. However, no positive statistical significance was found between thinking with mental models and decision frames with tax compliance. Mental models can act as internal guides...