Impact of taxes on performance of small scale business enterprises in central Uganda

Abstract

The purpose of the study was to evaluate the impact of taxes on the performance of small scale business enterprises in Central Uganda, secondary data was used and a sample of 80 SMEs was considered. Results showed that 59% of the SMEs had low performance and 41% had high performance. The Pearson chi squared measure of association at 5% level of significance showed that gender, level of experience, labour productivity, years spent running the business, tax amounts, and tax types had a statistical significant relationship with performance. The binary logistic results showed that the female managers /owners had less odds of having high performance as compared to the male counterparts, respondents with more years of experience had high odds of having high performance than those with less years, those with very efficient worker had high odds of having high performance than those that were somehow, those who spent 7 and more years running the business had high chance of having high performance than those who have run 1-3 years, those that paid more tax had less odds of having a high performance than those that paid less tax, and finally those that paid property tax had high odds of having high performance than those that paid VAT I recommend that URA should find a way of assessing the tax in that the small scale businesses should pay early in the financial year in order to give enough time to the businesses to pay their dues rather than make an assessment and demand for payment spontaneously. I also recommend that the tax authorities should introduce a scheme that allows tax payers to pay the tax obligation in the installments over a given period of time as opposed to lump sum at once. URA should revise the amount of tax paid by small scale enterprises as it was revealed that small scale enterprises are charged highly and should reach out and educate the business community about its different tax rates and mode of payment. The study revealed that the biggest problem with the tax paid is in fact that the small scale business community does not understand how the tax is arrived at as well as how it is paid but not because it is too high.