The impact of multiple taxation on the growth of small and medium size scale enterprises:case study limbe municipality
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This study focused on the effects of multiple taxation on small-scale enterprises in Limbe.
The importance of small-scale enterprises in the development of any given economy cannot be over-emphasized, hence, the need to undertake this study.
It was equally the focus of this study to examine the various ways multiple taxation impact the growth of SMEs.
The data employed for this research work was basically survey data as it relates to entrepreneurs of small-scale enterprises.
This survey included 30 respondents. Questionnaire consisting of 24 questions, requiring quantitative information, yes or no answers and multiple-choice options was used.
Data obtained were analysed with the help of descriptive static’s, and the Spearman correlation coefficient.
The findings indicated that the growth is small and medium size scale enterprises is highly affected by multiple taxation.
Government regulation and tax environment are bewildering and represent a very serious obstacle, to starting an SME in Limbe. Over 80% of SMEs in Limbe cannot undertake any new investment activities due largely to lack of savings prompted by tax expenditure.
Half of the SMEs declared that their profit has been reduced due to increase in tax and levy rates.
It was observed that there is a high level of government interference in SMEs operations and 79% of the interference is attributed to Local Government Authorities.
It was also found that about 50% of the total SMEs reported that tax burden as a proportion of their turnover account for about 50 – 60% challenge to their growth.
It was found that simplified tax and reduction of tax rates ranked highest and second highest respectively among the suggested tax policies that would enhance the growth of SMEs.
It was found that due to hassles by tax agents and multiple registration of business, many SMEs conceal their activities.
It was also found that SMEs operators pay on average 15 taxes though this varies with respect to geographical location of the business and the type of the business.
In recent times the world economy has developed tremendously and this has been linked with the activities carried out by small and mediums size scale enterprises (SME’s).
A study carried out by the ministry of small and medium size scale enterprises in Cameroon makes up to 97% of productive units of the economy (Ariyo 2005).
The social economic advantages of small and medium size scale enterprises cannot be over rated, they are the most important enterprises in the company due to the fact that when all the individual effects aggregated, surpass that of large companies.
Panitchipakdi (2006) sees SME’s as a source of employments, competition dynamism, and innovation which stimulates entrepreneur spirit and diffusion of skills.
SME’s also contributes to better income distribution, and has been an avenue for job creation in Cameroon and empowerment of Cameroon citizens providing about 55% of all jobs is Cameroon.
Being highly innovative, they lead to the utilization of our natural resources which in turn translate to increase in the country wealth through their high productivity, they are considered as a very important avenue for achieving poverty alleviation and reducing unemployment.
Small and medium size scale enterprises have undoubtedly improved the standard of living for so many people especially those in rural areas (Ariyo 2005).
According to statistics,80% of SME’s die before their 5th anniversaries because of factors which include; tax related issues, ranging from multiple taxation to enormous tax burdens etc. In many government policies, small and medium size scale enterprises are usually viewed and treated in the same light as large corporations.
However, in levying taxes for small and medium size scale enterprises, issues that need to be consider are how these tax polies can be designed to boost the performances of the most effective ways to administer them.
Taxes generally provide basic government revenues, which help in the carrying out of the state’s functions.
This is why [Ojo 1996] defined tax as a means by which government appropriates part of private sector’s income and expenditure as its revenue for the purpose of meeting recurrent expenditure and creating public capital formation towards the development and growth of goods and services of the economy.
A good tax possesses the following qualities; fairness, convenience, simplicity, and a minimum cost of collection and minimum distortions.
Musgrave 1980 noted that taxes that taxes should be chosen at a minimized interference with economic decision in other efficient markets. Imposition of excess burden should be minimized.
Taxes therefore play a major role in the development of the economy.
This is the role of providing finance for the government’s expenditure. However Holton 2007 posited that taxation can contribute to development and to welfare through three sources;
it must be able to generate sufficient fund for financing public services and social transfer at as high level of quality, it should offer incentives for more employment and for an efficient lasting use of natural resources, finally It should be able to reallocate income.
But in the case of SME’s tax must be done in such a way that put their income into consideration.
Multiple taxation occurs when the same income is subjected to more than one tax treatment.
That is, different taxes are being imposed on a particular income, the various taxes imposed on income of SME’s on Cameroon are; global tax and business license tax (patent).
Oludele 2012 argues that high tax rate and tax complicity discourages the growth of SME’s and this has been an economic effect on the growth of the economy.
Taxes increases production cost of goods and services and as a result the final consumer suffers from high prices of these commodities.
Meanwhile, the revenue collected from taxes represents the major founding source for governmental expenditures (Baurer 2005).
Most business organization see paying of taxes as a burden and detrimental to their growth and leading to tax avoidance and tax invasions.
Tax evasion in general refers to illegal practices to escape from taxation. To this end, taxable income, profits liable totax or other taxable activities are concealed, the amount or source of income are misrepresented or tax reducing factors such as deductions, exemptions or credits are deliberately overstated (Alm and Vazquez 2001 and Chiumya,2006).
Tax avoidance, in contrast, takes place within the legal context of the tax system that individuals or firms take advantage of the tax code and exploit ‘loopholes.
Moreover, despite the contribution that tax can make towards the gross domestic product (GDP), the growth of business organization has to be taken into consideration.
This situation rises a serious concern about the issues of aligning the tax planning system to the specific requirements of a particular country’s growth need, as it has to balance both in short- and long-term impact of the policy.
This also triggers needs for an in-depth study of the different issues, preventing the development and implementation of effective tax policy and systems particularly in the context of SME’s (Njemo C 2014)
Taxes are broadly divided into direct and indirect taxes (Lawal 1982). Examples of direct taxes include, income tax, corporation tax, capital gain tax, inheritance tax.
While indirect taxes are mostly taxes imposed on goods and services, examples include Value added tax (VAT) excise duties, import duties, purchase tax, and export duties. (AanuOjekal 2012)
Although there has been a general perception that tax is an important source is funds for development of the economy and provision of social services,
the problems faced are in the areas of negative relationship between taxes and the business ability to sustain itself (performance) and to expand (growth) and also how to find the optimal balance between a tax regime that is business and investment friendly,
while at the same time leveraging enough revenue for public services delivery which in turn makes economies more attractive to investors.
As regards to this, Cameroon’s dream of becoming and emergence country in 2035 is very skeptical since SME’s are faced with the problem of high tax rates, multiple taxation, complex tax regulations and lack of proper enlightenment or education about tax related issues.
Without minding other challenges, the SME’s face in Cameroon which include, inadequate capital, poor technical and managerial skills, environmental effects, and government regulations which affects the operation of SME’s, especially issues of multiple taxation which is a worm eating deeply into the revenue generated by these SME’s for their growth and survival.
These have led to increase in records of death of small and medium size scale enterprises (SME’s).
The researcher must be guided by a set of rules in order to achieve the objectives of the studies. Questions may include:
- What is the relationship between multiple taxation and the performance of SME’s in the municipality of limbe?
- Does the size and ability of the SME’s to pay taxes affect their survival?
- If the tax system in Cameroon is favorable?
- Does the imposition of taxes on SMEs retard economic activities?
Their main objective of these studies includes;
- To determine the impact of multiple taxation on the growth of small and medium size scale entrepreneurs.
- To determine the role and effects of multiple taxation on the survival of small and medium size scale enterprises
- To determine the growth potential of small and medium size scale enterprises with little or no multiple taxation.
- To ascertain whether small and medium size enterprise’s ability to pay taxes depends on their sizes
- To find out if SMEs make profits even with the presence of multiple taxation.