The effect of income tax administration and profitability of small scale medium enterprises

Abstract

This study was to establish the Income tax administration and profitability of Small Scale Medium Enterprises: A case study selected SEMS Kamukuzi Town Council. The study aimed at assessing the profitability of Small Scale Business Enterprises in Kamukuzi Town Council; finding out if taxpayers are aware of all their tax obligations, know how income tax is administered, policies and problems affecting them as well as their businesses. The study was guided by the following research objectives; to evaluate the effectiveness of the income tax administration of the selected Small Scale Business in Kamukuzi Town Council, to examine the profitability of the selected Small -Scale Business Enterprises in Kamukuzi Town Council and to establish the relationship between income tax administration and profitability of small-scale business enterprises in Uganda. The study applied both qualitative and quantitative research designs where interviews and Questionnaires were used. Data was collected from both primary and secondary sources. Data was processed and analyzed using formal tables, and correlation to find out the relationship between income tax administration and profitability of small scale businesses. Total of148 respondents were considered out of the entire population in the selected SMEs in Kamukuzi Town Council. The findings revealed that income tax administration is poor and this was shown in the findings that indicated that the business community is not adequately sensitized, tax rates are at times high and they are based on estimates. Tax rates do not take in to account the circumstances in which small businesses operate, that has negatively affected the profitability of the small scale businesses leading to low capital employed, high expenses incurred, low sales made and the average amount of taxes paid annually being so high. In conclusion, therefore, URA needs to carry out an extensive survey-based analysis of small firms‟ profit margins to determine presumptive tax rates, which will not affect the small business earners. The researcher therefore, recommended that, URA; should supply tax assessment forms in time, intensify on the sensitization campaigns of the taxpayers, employ competent staff, educate the business community about its different tax rates and introduce a scheme that allows taxpayers to pay the tax obligation in installment to better the profitability of small-scale businesses. There is therefore need for more research on firms‟ management techniques, the role of bookkeeping and profitability of small and mid-size enterprise