The impact of taxes on the performance of small and medium scale enterprises
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Small and medium enterprises are essential in the development of the Cameroon economy. The SMEs sector’s importance in the economic development of any country in recent years cannot be underrated especially with regard to creation of employment, innovation, uplifting the people’s standard of living and financial contribution to the growth of the country’s GDP. This sector’s growth is hindered by the challenges of lack of financial resources to expand, the entrepreneur managerial skills, unskilled labour, production of poor quality goods, lack of market for their products, infrastructure and above all taxation policy which does not favour their growth potential. The study looked at the impact of tax influence on SMEs sector growth in Cameroon. The study employed descriptive design. Primary data was collected on valuables contributing to tax influence and their effect of the growth of SMEs. A total of 25 respondents were considered out of the entire population in theBuea. The study found that there was a significant correlation between taxation and SMEs sector growth. The study recommends that there be a friendly tax policy for all start up businesses preferably a tax holiday, or an introduction of a growth limit which can be said to be a level stable enough to sustain tax payment. It also recommends that, tax department should supply tax assessment forms in time, intensify on the sensitization different tax rates and introduce a scheme that allows taxpayers to pay the tax obligation in instalment 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 micro enterprise.
The ability of smaller firms to create jobs is clearly a major attraction for governments in the short term. SMEs must be encouraged and supported to flourish. This is important so that economic objectives (economic growth and development, favorable balance of trade and payment and employment) and social objectives (poverty alleviation and improving standards of living) can be realized. Governments must respond to the needs of SMEs as they form an important component of the economy. As a result Small and medium enterprises (SMEs) are considered the backbone of economic growth in all countries. Smaller enterprises represent over 90% of private businesses and they contribute to more than 50% of employment and GDP in most African countries (UNIDO, 2009). Small enterprises in Cameroon are said to be a characteristic feature of the production landscape and have been noted to provide a majority of manufacturing employment in Cameroon. SMEs are also believed to contribute about 70% to Cameroon’s GDP and they account for over 50% of businesses in Cameroon. In line with the various statements propagated above, it is reasonable therefore to state that SMEs have a crucial role to play in stimulating growth, generating employment and contributing to poverty alleviation, given their economic weight in African countries. Despite the contribution that taxation can make towards the Gross Domestic Product (GDP) of a country in general, much attention is also needed to the side effects of tax on the growth of SMEs. This is because SMEs play a crucial role in driving economic growth in both developing and developed countries. As highlighted previously, as a group, they do not only generate more new jobs than large firms or macro-enterprises but also introduce innovative ideas, products, and business methods. However, literature has not contributed much in exploring the negative effect of tax payment on the financial performance of SMEs in developing countries (Baurer, 2005). This situation raises a serious concern about the issue of aligning the tax system to the specific requirements of a particular country’s growth need, as it has to balance both short-term and long-term impact of the policy. This also triggers the need for an in-depth study of how tax payments affect SME development. In addition, most of the literature and research on the subject matter are mostly foreign and western in nature where the dynamics of SME activities are different from that of developing countries like Cameroon. This study therefore seeks to examine the effect of the tax system on the performance of Small and Medium Enterprises in Cameroon, focusing on those under the Buea Divisional tax center.
There are a lot of problems that bedevil SMEs and stunt their growth. Although there are some problems peculiar to a particular country, the challenges faced by SMEs in different countries and geopolitical divisions are basically the same. For instance, a survey of Turkish SMEs by Organization for Economic Co-operation and Development (OECD) in 2004 showed that they were suffering the consequences of policy inconsistency, poor access to finance, insufficient know-how and low level of technology, and so many others. The same problems were also registered by other authors concerning other regions like the Philippines, Malaysia and other European states and of course in Central African countries –Cameroon inclusive as shown by different authors on the issue. The research seeks to investigate therefore the effects of taxes on the performance of Small and medium enterprises in Buea.
The general objective is to examine the effect of taxes on SMEs performance.
- To ascertain the relationship between tax payment and SMEs performance
- To determine whether tax payment affects SMEs performance
The study was guided by the following research questions;
- How tax rate affects growth of small-scale business enterprises in Buea?
- Which tax policy is administered on small-scale business enterprises in the Buea tax?
iii. What is the types of tax that affect the growth of small-scale business enterprises in Buea?
The following research hypotheses were developed in order to properly address the problems of the study. These hypotheses were stated in Null forms as follows:
Ho1: There is no significant relationship between taxation and SMEs’ survival.
Ho2: The relationship between SMEs’ size and its ability to pay taxes does not significantly affect their performance.
The results and recommendations of the study will help the policy makers in decision making and enable them put in place policies guiding operations of the SMEs. The management in both small and large sectors will also understand the effects of taxes on their operations.
The findings will also benefit the different stakeholders as explained below:
- The traders- they will learn their duties as tax payers. Taxes being one of the operational costs of business and must be paid.
- The tax department – will amend parts of the Tax laws which are unfair to small scale traders.
- The Buea Divisional tax centre together with other tax centres will use appropriate trader friendly methods when collecting taxes.