Impact of Taxation on The Financial Performance of Small and Medium Entreprises : A Case Study Mbarara Central Market , Mbarara City

Abstract

This study aimed at examining “the impact of the taxation on the performance of Small and Medium Enterprises in Uganda.” To achieve this purpose, specific objectives of the study were developed to: determine the extent to which tax compliance influences the performance of SMEs; establish the influence of tax rates on the performance of SMEs; and determine the effect of tax incentives affect the performance of SMEs. The study adopted the descriptive study design based on the quantitative and qualitative approaches. The study population of 100 registered SMEs in Mbarara was used to select a sample size of 50 SMEs using simple random sampling. Data were collected using the self-administered questionnaire and interview guide. The Statistical Package for Social Sciences (SPSS), was used to analyze quantitative data while qualitative data were analyzed using thematic analysis. The study findings showed that tax compliance has a statistically significantly moderate positive effect on the performance of SMEs since p - value (.000) is less that the significance level and the correlation coefficient (0.689). Tax rates have a statistically significant strong positive effect on the performance of SMEs since p – value (.000) is less that the significance level and the correlation coefficient (0.689). Tax incentives have a significant strong positive effect on the performance of SMEs, since the p – value (.000) is less than the significance level and the correlation coefficient (0.776).The study concluded that tax compliance, tax rates, and tax incentives have a statistically significant positive influence on the performance of SMEs. The study recommended that; strengthening the system of taxation through having a simplified system of taxation that can support SME tax payers to meet their tax duties; designing effective tax rates that are not based on the taxable profits as demarcated in the law but on an economic measure which includes the impact of the tax base; strengthening tax incentives to support infant small and medium firms so as to stimulate the performance of SMEs in the economy.