Effects of Taxation on the Growth of Small and Medium Sized Enterprises in the Central Region, Ghana

ABSTRACT

Small and Medium-sized Enterprises constitute the majority of business ventures and significantly contribute to the employment and economic liberation of both developed and developing economies. Notwithstanding the huge contribution of SMEs to countries' economic development, they are faced with challenges of high tax rates, unfavourable tax policies that tend to affect their profits adversely and high tax compliance costs that accompany the filing of tax returns to revenue authorities. The study seeks to examine the impact of taxation on the growth of small and medium- sized enterprises in the Central region of Ghana. A descriptive survey design was employed to study 310 SMEs within the Central region. Structured questionnaires were used to collect data from SME respondents. The study adopted multiple linear regression to examine the relative importance of each of the five explanatory variables: the tax rate and complexities, tax compliance cost, tax policy, size of business and business experience concerning the growth of SMEs. The study found that tax compliance costs and business experience have a significant positive relationship with the growth of SMEs. Tax rate and complexities, and tax policy have a statistically significant negative effect on SMEs' growth. The study recommends that the government should endeavour to reduce the rate of tax charged businesses especially SMEs. Also, it is recommended that tax policies targeted at the private sector should be sensitive towards SMEs.