Impact of Taxation On Performance of Small and Medium Enterprises in Kansanga, Makindye Division

TABLE OF CONTENTS

DECLARATION

APPROVAL

DEDICATION

ACKNOWLEDGEMENT iv

TABLE OF CONTENTS vi

LIST OF TABLES x

LIST OF FIGURES xi

ABSTRACT

C HAP”rER ONE nuunuo~ 1

BACKGROUND AND INTRODUC’~rION ~1

1.0 Introduction 1

1.1 Background of the study 1

1.1.2 Theoretical perspective 2

1.1.3 Conceptual Background 3

1.2 Statement of the problem 3

1.3 Objectives of the study 4

1.3.1 General Objective 4

1.3.2 Objectives of the study 4

1.4 Research questions 4

1.5 Scope of the study 5

1.5.lSubjectscope 5

1.5.2 Geographical scope 5

1.5.3 Time scope

1.6 Significance of the study s

1.7 Conceptual framework 6

CtIAPTER1WO ~7

LITER.AT1.JRE REVIE~A1 7

vi

2.0 Introduction~7

2.1 The concept of taxation 7

2.1.lTax 7

2.1.2 Classification of taxes 8

2.1.3 Types of Tax 8

2.2 The purpose of taxation 10

2.2,1 Tax payer’s knowledge 11.

2.3 Tax policies 1I_

2.4 Approaches to tax administration 12

2.4.1 Identification of a tax payer 12

2.4.2 Assessment of taxes 13

2.5 Small and medium business 13

2.6 Fines and penalties 14

2.6.1 Performance of small and medium enterprises 14

2.6.2 Other indicators of performance of SMEs 15

2.7 Taxation and business performance 15

2.8 Taxes and profit levels 16

2.9 Taxation and investment 17

2.10 Problems encountered by SMEs in trying to comply with tax policies. ............,17

2.11 Theoretical Review 18

2.12 Conclusions 22

CHAPTER ‘T’HREE Ku~~uu 23

M ET1IODOLOGY ~23

3.0 Introduction 23

3.1 Research design 23

3.2 Study population 23

3.3 Sampling 23

3.3.1 Sampling design 23

3.3.2 Sample size 23

vii

3.3.3Sampling procedure .24

3.3 Sample size 24

3.4 Study variables 24

3.5 Sources of data 24

3.5.1 Secondary data Collection 24

3.5.2 Primary Data 25

3.6 Methods of data collection and instruments 25

3.6.1 Questionnaires 25

3.6.3 Observation 25

3.7 Data processing analysis and presentation 26

3.7.1 Data processing 26

3.7.2 Data analysis 26

3.7.3 Data Presentation 26

3.8 Limitation of the study 26

CHAP’T’ER FOLJ R a. ,,,a.a .aaa.a naaaaa.nuaaaaaaa,aauaaaa,uaaauaaaaa u@DatftaSgaaaaaacuagaauaaaaaa,anaga,a,,oaa 27

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF THE

FINDINGS1.u.a a as aaau,.,aaasaau..aauaaaac..aaaaaauaaaa,.~ 27

4,0 Introduction 27

4.1 Demographic characteristics of respondents 27

4.1.1 Age of the respondents 27

4.1.2 Gender of the Respondent 28

4.1.3 Level of Education of the respondents 28

4.1.4 Time spent in the business 29

4.2 Awareness of the tax payers 30

4.2.1 Whether respondents are aware of the taxes they are to pay 30

4.2.2 Tax assessment 31

4.2.3 Assistance as regards tax awareness 32

4.3TaxesPaidbySMES 34

3.3.1 Common taxes paid by SMEs 34

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4.3.2 Average amount of tax ,34

4.3. Problems faced by tax payers 35

4.3.2 Efficiency of tax officers 35

4.4.3 Specific effects of the taxes on businesses 36

4.4.4 Suggestions from tax payers 36

4.4 Performance of Small and Medium enterprise 37

ChAPTER FIVE ~,,,nnam,.u,nus,,.,uunnnun, 39

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 39

5.0 Introduction 39

5.1 Summary of findings 39

5.1.1 Awareness of the tax payers 39

5.1.2 Taxes Paid by SMES 40

5.1.3 Problems faced by tax payers 40

5.1.4 Performance of Small and Medium enterprise 40

5.2 Conclusions to the study 41

5.2.1 Awareness of the tax payers 41

5.2.2 Taxes Paid by SMES 41

5.2.3 Problems faced by tax payers 41

5.2.4 Performance of Small and Medium enterprise 41

5.3 Recommendations 42

5.3.1 Awareness of the tax payers 42

5.3.2 Taxes Paid by SMES 42

5.3,3 Problems faced by tax payers 42

5.2.4 Performance of Small and Medium enterprise 42

5.4 Areas for further research 42

REFERENCES 44

APPENDICES 48

APPENDIX I: QUESTIONNAIRE FOR BUSINESS PROPRIETORS 48

APPENDIX II: INTRODUCTORY LETTER 54

ABSTRACT The general purpose of the study was to evaluate the impact of taxes on performance of small and medium business enterprises in Kansanga and the specific objectives were; to assess the performance of small scale business enterprises in Kansanga, to find out if tax payers are aware of all their tax obligations and policies and to find out problems affecting tax payers and their businesses in Kansanga The study revealed that taxes mainly affects the performance of Small and Medium Enterprises through lost sales during closure of the business premises by URA, the loss of machinery and equipment due to delay in remitting the tax and the loss of capital due to the fines imposed by URA onto SME5 that default on their tax obligation. Overall business performance was fair as most businesses could duly cover up their expenses, had enough stock, awareness of tax payers was poor and a number of problems were encountered. It can be concluded that taxes are major limitations to the growth and expansion of SMEs in Kansanga. This is because very little and sometimes nothing is left after covering expenses and tax to allow the expansion and growth of the existing SMEs. The findings further revealed that tax officials are inefficient, the mode of tax collection and assessment was un fair, taxes levied are unfriendly and also most of the respondents revealed they do not get assistance from the tax authorities. The study recommended that, URA should find a way of assessing the tax in that the SMEs 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, 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 and that URA should reach out and educate the business community about the different tax rates and mode of payment.