The effect of taxation on the performance of small scale businesses

Abstract

The study intended to investigate the effect of taxation on the performance of small scale business in Mbale municipality and the objectives of the study were tax policy and performance of small scale business, how tax rates affect the performance of small scale business and how tax assessment affects small scale business performance. The study used a case study design. Both qualitative and quantitative approaches were used in the study and a sample of 92 respondents was selected from a population of 120 respondents. Both questionnaires and interview methods were used to collect data from the field and the data was presented in tabulated format with respective frequencies and percentages. The findings show that tax policies created by the government and the local governments for example Mbale municipal council must favor small scale business, because poor tax policies make these businesses to suffocate and this lowers growth in economy. High tax rates also create a burden to small scale businesses because they tend to lower the profits of the entrepreneurs. Multiple tax assessment of small scale businesses by Mbale municipal council significantly affects the performance in terms of innovation due to different assessment of businesses and creates non compliance among the tax payers. The government must revise the tax policies that it implements for example capital gains tax, when the mode of payment is not being complied by the small scale businesses, the government must do some adjustments in the tax policy The URA should reach out and educate the business community about its different tax rates and mode of payment. The study revealed that the biggest problem with the tax paid is in fact that the SSBs community does not understand how the tax is arrived at as well as how it is paid URA should improve on the methods of collecting the taxes. It should adopt the closure of business premises on default only as a last resort after all the other methods of collection have failed. This should be an exception and not a rule. The tax authority should strengthen its tax systems to eliminate corruption among technocrats who enforce different taxes on the small scale business.