Tax administration and financial performance of small and medium scale enterprises in Uganda

Abstract

This study aimed at evaluating the effect of tax administration on the financial performance of Small and medium scale enterprises. The major objectives of the study were to; examine the effect of tax assessment on financial performance of SMEs, to find out the effect of tax collection on financial performance of SMEs, to establish the effect of filing tax returns on the financial performance of SMEs, and to find out the relationship between tax administration and financial performance. Literature on both the dependent and independent variables was reviewed from various sources, which included published documents, and existing valid reports from different researchers. The researcher used case study design, based on quantitative and qualitative approaches for research methodology. Both Primary and Secondary data sources were used and the data collection methods used included questionnaires and observations. The statistical package for social sciences, Microsoft Excel, as well as, Microsoft word was used during data analysis. The study findings show that tax assessment influences financial performance in a negative way, due to presence of issues like subjective estimation of taxes that does not involve deep analysis of traders’ income base. The study shows that tax collection has a positive influence on financial performance of SME, as it enables traders to be aware of their tax obligations and when their payments are due. Filling tax returns has a negative influence on financial performance of SMEs as the study findings show, due to skills and resources involved in compiling tax returns that SME owners face at an expense. It was recommended that, the URA should consider providing more technical support and training to SME owners on how to use and access online tax systems, especially to complete their tax returns. Also, tax payers schemes should be aimed at enabling tax payers submit their taxes in instalments over a given period of time rather than in lump-sum. Lastly, it was recommended that the URA should consider revising their tax collection methods, by adopting legislative procedures like court proceedings, for tax payers that fail to clear within the stipulated time.