Taxation Practices and the Survival of Small and Medium-Sized Enterprises (SMEs)

Abstract

Small and Medium-sized Enterprises (SMEs) serve as vital economic stimulators in developing and developed economies. However, several factors including high energy costs and taxing practices hamper these businesses growth and expansion. Essentially, taxation or taxing practices are those multiple payments obligations placed on SMEs by the state. This study examined the effect of taxation/taxing practices on the growth of SMEs with a specific focus on whether ‘multiple payment obligations placed on SMEs have significant implications on their profitability, investment decisions, and cash flows. The study adopted survey research design. The chi-square and regression analysis were used in testing hypotheses. Results from the chi-square and regression analysis indicated that tax practices significantly affect SMEs profitability and investment decisions. However, on the effect of taxation on the cash flow of SMEs, the chi-square test showed a non-significant effect of taxation on cash flow while the regression analysis revealed a significant relationship between taxation and cash flow of SMEs. This contradiction may be ascribed to bias exhibited by some respondents in answering some questions asked during the survey. Therefore, the study recommended that the government improves on tax incentive already provided, improve infrastructure, and implement tax policies based on the ability to pay and eschew multiplicity of payment by SME owners; these will eventually encourage growth and expansion of SMEs and the economy at large.