Assessment of factors influencing tax compliance among small and medium businesses enterprises: case study of Kikoni, Makerere

Abstract

Small businesses are universally recognized as key drivers of growth and innovation, making substantial contributions to value created with in economies however, they have been associated highly with Non-tax compliance tendencies. Therefore, this study specifically assessed factors that highly influence tax compliance among small and medium business enterprises in Kikoni, Makerere. A cross-sectional research design was employed considering a random sample of 100 SMEs whose operators were interviewed using a self-administered questionnaire that was programmed on Kobo-Collect APP installed on the smart phone. The collected data that was sent to the server was later exported to STATA version 15 for processing and analysis. Most of the respondents were females (57%), business owners, managing directors and finance managers, majority (76%) had spent 1-10 years in existence and over half of them were dealing in retail trade and hostel/restaurants. A high percentage (58%) of the SMEs were making 21-50 million annual turnover and most (69%) of them were employing 1-4 people. On the aspect of tax compliance most (53.00%) of the SMEs reported not having tax identification number however majority (60.00%) reported paying all the levied taxes in times. Most of the respondents reported that Uganda has no high tax rates (67%) and agreed that that the tax forms are not many (56%), more so majority (54%) reported that tax rates do not influence their tax compliance. Considerate number respondents (44%) reported having no ability to correctly calculate the taxable amount using the available informs which most sited that it significantly influences their tax compliance. Over 70% of the SMEs spend at least 50,000 UGX costs annually as they are complying to taxes and most of the costs involved employing professional and book keeping. Bivariate results showed that tax compliance among SMEs significantly depended on the period an enterprise spent operating, nature of business, businesses` annual turnover and number of employees. More so, a binary logistic model showed that tax compliance among SMEs was significantly associated with nature of business and business` annual turnover where businesses that earning over 36 million annual turnover had high odds of complying to taxes as compared to the rest and those dealing in Transport and Fruit vending and informal trade had less odds of complying to taxes. The researcher recommends the government and tax authorities to increase on the availability of tax information to SMEs in order to improve on their compliance and in turn this will raise tax revenues of the country.