The Impact of Taxation and Performance of Small and Medium Enterprises

Abstract

This study considered tax forms as the independent variable and performance of Small and Medium Enterprises as the dependent variable. The specific objectives of the study were; To find out the tax policies administered on small-scale business in relation to Fresh Cuts limited company in Uganda; To establish the role of taxation policy on performance of small and medium enterprises as related to Fresh Cuts limited company in Uganda and To find out the challenges and strategies employed to sustain Fresh Cuts limited company in Uganda

The study used a case study research design with quantitative and qualitative research techniques using a total sample size of 40 respondents. Data was collected using self-administered questionnaires and face to face interviews.

It was observed that income tax, progressive tax, regressive tax, proportional tax and personal income tax are the tax polices administered on small scale businesses. From the study it was also discovered that Taxation increases the power of government, leads to reduction of business resources, forces business owners to transform to smaller business and increases production and operating costs whereas reduced compliance costs increases the small enterprises’ profit margin. From the study it was also exposed that taxation can increase the expenses that businesses face, limits financial disclosure which limits access to credit and also cost of registering a business and processing their returns far outweighed the benefits in terms of revenue yield. It was also recommended that the government should regulate the level of taxation with the size of the business, introduce business loans and also entrepreneurs should adopt budget control, accounting and monthly reporting monthly to ensure profitability of a business

Finally, it was recommended that entrepreneurs should use SWOT analysis that helps in identifying the business's strengths, weaknesses, opportunities and threats, use benchmarking which measures the business's performance against similar-sized businesses in the industry. This will help to determine the loop holes in a business. The government should take into consideration the size of business before imposing a tax on a business owner. This will help to avoid over taxing entrepreneurs with less tax base thus reducing on the operating costs of the business.

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