Effects of Taxation on Financing Decisions of Small and Medium Enterprises in Kumasi Metropolis

ABSTRACT

The study assessed the effects of taxation on financing decisions of SMEs in Kumasi Metropolis, Ghana. Kumasi is mostly dominated by SMEs in various economic sectors of the Ghanaian economy. The study targeted registered SMEs, with a sampling frame of 153 businesses. A sample size of 115 was determined and were selected (stratified sampling technique). A 100 percent return rate was recorded. Descriptive research survey design was adopted and through structured questionnaire, primary data were gathered for data analysis purposes. The study employed the quantitative research approach. Statistical Package for Social Science (SPSS Version 22.0) was used to analyze the primary data. An internal consistency reliability of 0.763 was obtained for the instrument. Inferential statistics (Standard multiple regression, Pearson product-moment correlation) and descriptive statistics (Mean, standard deviation, frequency, percentage) were employed to obtain the needed insights from the processed primary data. It was discovered that majority of the SMEs duly pay taxes to Ghana Revenue Authority and are registered tax payers. However, 41.7% of SMEs delay in tax payment. SMEs do enjoy tax incentives. Again it was discovered that taxation negatively affect financing decisions in the areas of number of workers to employ, working/operational capital, investment funding and profitability. The results of the study showed that corporate taxation causes a statistically significant positive variance in SMEs’ growth (R 2=0.368; p=000, p