The impact of taxation on the performance of small and medium business enterprises in Uganda; Case study: Nakasero market Kampala, Uganda.

Abstract

This study sought to examine the impact of taxation on the performance of small and medium business enterprises in Uganda taking Nakasero market as the case study. Taxation relatively affects the businesses in the form of reduction in the capital employed as well the profits earned in terms of revenue. The study is expected to contribute to the body of knowledge and evidence necessary as regards to underlining the impact of taxation as a core contributing factor towards the effectiveness and efficiency in performance of small and medium enterprise in Uganda. The objectives of this study were; to asses the impact of value added tax on the performance of small and medium enterprises in Nakasero market; to find out if customs tax influences the performance of small and medium enterprises in Nakasero market; to establish whether fines and licenses affects the performance of small and medium enterprises in Nakasero market and to ascertain whether income tax has a direct effect on the performance of small and medium enterprises in Nakasero market. The study employed quantitative and qualitative approaches of data collection and analysis. A sample of 44 respondents from Nakasero market was studied. Qualitative and quantitative data was collected using semi-structured questionnaires, interview guides and use observation methods. The researcher found out that taxation has a negative impact on the small and medium enterprises since regardless of the capital and revenue, one has to pay a specific type of tax as stated by the regulatory and tax body which is Kampala City Council Authority. The researcher recommended that Kampala City Council Authority should reduce taxes imposed on the small and medium businesses to enhance growth which eventually increases the tax base. The researcher found out that Value added tax does not affect the performance of small scale and medium enterprises because such businesses mostly deal in unprocessed foodstuffs and agricultural products which are exempted from Value added tax. The researcher recommended that traders should be sensitized about goods on which value added tax is applied to avoid exploitation from fraud authorities. The researcher in regard to the impact of customs tax on the performance of small and medium business enterprises found out that customs duty does not affect the performance of these businesses. This is because the products sold by these businesses are acquired from within the boarders of Uganda hence no need to levy customs duty. The researcher recommended that traders should be sensitized about goods on which customs duty is applied to avoid exploitation from fraud authorities. The researcher in regard to whether fines and licenses affect the performance of small scale and medium business the researcher found out that fines and licenses have a negative impact on the performance of the businesses. This is because the fines and license fees reduce the operating capital as well as the profits of the business hence hindering the development and growth of such businesses. The researcher hence recommended that clear laws, rules and regulations regarding payment of fines and licenses should be put in place to avoid exploitation of the traders as result of excess payment of taxes. The researcher in regards to whether income tax has a direct effect on the performance of small scale and medium enterprises found out that income taxes has an effect on the performance of theses businesses. This is because the all businesses are liable to pay a certain amount of tax inform of market charges and dues on a daily, weekly or monthly basis. This hence reduces the operating capital and profits of the business. The researcher recommended that affordable market dues and charges should be put place inorder to reduce on income tax burden on businesses.