Effects of taxation on the profitability of small and medium enterprises; case study: Lubaga division

Abstract

The major objective of this study was to examine the effect of taxation on the profitability of Small Medium Enterprises in Uganda (a case study of Lubaga Division). The specific objectives were; to assess the relationship between tax knowledge and tax compliance, to establish the types of tax that affects the profitability of small-scale business enterprises; to evaluate the effectiveness of the taxation system to the survival of SMEs. A descriptive research design was used to conduct the study with a sample size of 33 respondents. Various data collection instruments were used in this study and these include; questionnaires and interview guide. The study revealed that Kampala Capital City Authority, Lubaga Division use tax systems in accordance with managing tax collections from business men and women. Further it established that proper tax administration is a viable strategy for respondents who fail to pay on time, Aspects of collateral are considered while assessing the business owners within town, failure to assess customer's capacity to repay results in locking up their businesses. Tax administrators consider the character of the customers seeking guidance facilities and that they have competent personnel for carrying out duties for guiding the tax payers. The researchers findings indicated that URA has successfully implemented the adopted on line program as most of the respondents sampled were aware about the existence of the services. However despite the existence of the success achieved by URA the failures still exist as respondents could not easily give reasons for the adoption of on line services because most of them were illiterate on how to use on line transaction for better payment of taxes. Conclusively, on the basis of the findings from this study as presented, analyzed and interpreted in chapter four the main conclusion is that taxes imposed on small and medium enterprises impact their growth in terms of profits in different ways. From the study it has been found that changes in tax rates lead to the changes in prices of various goods and services. The increase in tax rates leads to higher production, distribution and selling costs which lead to higher prices and as a result consumers change their buying behavior The study recommends that KCCA Lubaga Division should enhance their collection policy by adapting a more stringent policy to a lenient policy for effective taxable income recovery. The study also recommends that there is need for management to enhance their tax payers’ techniques so as to improve their financial performance