The Effect of Taxation on the Financial Performance of Small Scale Businesses in Nsuube-Kauga Parish, Mukono TC Division

Abstract

The study sought to investigate the effect of taxation on the financial performance of small scale businesses in Nsuube-Kauga Parish, Mukono TC Division. The study was guided by three objectives: examining the relationship between tax rates and the financial performance of SSBs, establishing the relationship between tax compliance and the financial performance of SSBs and assessing the relationship between tax policies and the financial performance of SSBs in Kauga. The study was carried out using cross-sectional survey research design where quantitative research approach was utilized. Stratified sampling method was used to get a sample of 80 respondents who were SSB owners/ proprietors of the selected businesses dealing in segmented businesses and assorted merchandize in Kauga, Nsuube-Kauga Parish, Mukono TC Division and these responded to the questionnaires that were used to collect data. From the study findings, it was revealed that while some respondents acknowledged clarity in tax rates and compliance behaviors, the majority expressed significant concerns about the burdensome nature of taxes, their regressive impact on revenue, and the perceived inadequacy and opacity of tax policies. Notably, adherence to tax compliance positively influenced SSBs' financial performance, highlighting the importance of timely filing and payment. Conversely, unfavorable tax policies were strongly associated with diminished financial performance, suggesting a need for policy reforms to better support SSBs and foster growth. These findings collectively emphasize the critical role of tax policies in shaping the economic landscape for SSBs, urging policymakers to address the identified challenges to promote a more conducive environment for small business prosperity in the region. Finally, the study recommended the need for streamlining tax policies, introducing targeted tax incentives and enhancing tax education. It also recommended the need for addressing regressive tax measures, fostering collaboration between tax authorities and SSBs, conducting regular tax policy evaluations, and establishing a tax ombudsman for SSBs to handle tax-related grievances effectively.