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 SME sector’s importance in the economic development of any country in recent years cannot be underrated especially concerning the 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 a 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 the Buea.
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 the tax department should supply tax assessment forms in time, intensify the sensitization of 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, a need for more research on firms’‟ management techniques, the role of bookkeeping, and profitability of a 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, a 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 a 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 micro-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 growing need, as it has to balance both the short-term and long-term impacts of the policy.
This also triggers the need for an in-depth study of how tax payments affect SME development.
Besides, most of the literature and research on the subject matter is 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 centre.
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 the 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 does the tax rate affects the growth of small-scale business enterprises in Buea?
- Which tax policy is administered on small-scale business enterprises in the Buea tax?
- What are the types of tax that affect the growth of small-scale business enterprises in Buea?