The effect of taxes on the performance of small and medium enterprises in Uganda: a case study of Kawempe Division, Kampala

Abstract

The main objective of this study was to examine the effect of taxations on SMEs performance. The study also had two specific objectives examine the relationship between taxation and performance of SMEs and also determine whether SME’s ability to pay taxes depends on their size. The study population comprised of business people who operate small and medium enterprises in Kawempe, Kampala District. The small and medium enterprises were determined as businesses the employ less than 200 workers. Both primary and secondary sources of data. Primary data are also known as raw data. Raw data is data that has not been processed for use. Data was collected from the original source in an uncontrolled environment. To analyse the effect of the tax system on SMEs performance, regression method, particularly multiple linear regressions was the major statistical tool that was used. Study results show that the majority of respondents were single males that acquired post secondary education as their highest level of education. Variance of Analysis (ANOVA) results showed that the there is a significant relationship between the size of business and the amount of taxes paid annually by SMEs at 5 percent level of significance since the p-value is less than 0.05. This therefore implies that the ability of an SME to pay tax highly depends on its size. The regression results showed a statistically significant negative relationship at (at 5 percent level of significance) between the taxes and the performance (annual profits) of SMEs in Kawempe Division in this study since its P-value is less than 0.05. The results were as postulated and this means that on average, a unit increase in the taxes leads to a 5.95 decrease in the performance (annual profits) when the other independent variables are held constant. Furthermore, the regression results showed a statistically significant positive relationship at (at 5 percent level of significance) between the access to credit and the performance, age of SME operator and the performance (annual profits) of SMEs in Kawempe Division in this study since its P-value is less than 0.05. The study therefore recommends that the tax laws that govern taxation in Uganda be taught to the nation at a large scale. Businessmen also need to be sensitized on the importance of keeping records.