Effect of taxes on small scale businesses in Uganda: case study [of] Nakawa Division - Kampala, Uganda

Abstract

The objective of this study was to examine the effect of the taxation on the performance of Small and Medium Enterprises in Uganda. Specifically, to determine the extent to which tax compliance influences the performance of SME, establish the influence of tax rates on the performance of SMEs, and determine the effect of tax incentives affect the performance of SMEs. The study adopted the descriptive study design based on the quantitative and qualitative approaches. The study population of 17,573 registered SMEs in Nakawa was used to select a sample size of 377 SMEs using simple random sampling. Data were collected using the self-administered questionnaire and interview guide. The Statistical Package for Social Sciences (SPSS), was used to analyze quantitative data while qualitative data were analyzed using thematic analysis. The study findings showed that tax compliance increases with the period the enterprise stays in the business, and that taxation also hinders businesses from achieving their goals since they can conveniently pay out the taxes. The study concluded that tax compliance, tax rates, and tax incentives have a statistically significant positive influence on the performance of SMEs. The study recommended that; strengthening the system of taxation through having a simplified system of taxation that can support SME tax payers to meet their tax duties; designing effective tax rates that are not based on the taxable profits as demarcated in the law but on an economic measure which includes the impact of the tax base; strengthening tax incentives to support infant small and medium firms so as to stimulate the performance of SMEs in the economy.