Income Tax Administration And Profitability Of Small Scale Business Enterprises In Uganda A Case Study Of Kikuubo B. Kampala Central

ABSTRACT

This study was to establish the relationship between income tax administration and profitability of small-scale business enterprises in Kikuubo B. Kampala Central. The study

aimed at assessing the profitability of business enterprises in Kikuubo B. Kampala Central; finding out if taxpayers are aware of all their tax obligations, know how income tax is

administered, policies and problems affecting them as well as their businesses.

The study was guided by the following research objectives; to establish how income tax administration is administered and imposed on small-scale business enterprises, to assess the

profitability of small-scale business enterprises, to establish the relationship between income tax administration and profitability of small-scale business enterprises in Uganda.

The study applied both qualitative and quantitative research designs where interviews and Questionnaires were used. Data was collected from both primary and secondary sources. Data

was processed and analyzed using formal tables, pie chaiis, graphs, narrative text, and correlation to find out !he relationship between income tax administration and profitability of small scale businesses. A total of 50 respondents were considered out of the entire population in the Town Council.

The findings revealed that income tax administration is poor and this was shown in the findings that indicated that the business community is not adequately sensitized, tax rates are

at times high and they are based on estimates. Tax rates do not take in to account the circumstances in which small businesses operate, that has negatively affected the profitability of the small scale businesses leading to low capital employed, high expenses incurred, lo\, sales made and the average amount of taxes paid annually being so high.

In conclusion, therefore, URA needs to carry out an extensive survey-based analysis of small firms profit margins to determine presumptive tax rates, which will not affect the small business earners.

The researcher therefore, recommended that, URA; should supply tax assessment forms in time, intensify on the sensitization campaigns of the taxpayers, employ competent staff, educate the business community about its different tax rates and introduce a scheme that allows taxpayers to pay the tax obligation in installment to better the profitability of smallscale businesses. There is therefore need for more research on firms' management techniques, the role of bookkeeping and profitability of small and mid-size enterprise.

TABLE OF CONTENTS

DECLARATION ........................................................................................................................ i

APPROVAL .............................................................................................................................. ii

DEDICATION .......................................................................................................................... iii

ACKNOWLEDGMENT .......................................................................................................... iv

TABLE OF CONTENTS ........................................................................................................... v

LIST OF TABLES .................................................................................................................. viii

LIST OF FIGURES .................................................................................................................. ix

LIST OF ACRONYMS ............................................................................................................. x

ABSTRACT .............................................................................................................................. xi

CHAPTER ONE ...................................................................................................................... 1

INTRODUCTION ................................................................................................................... 1

1.0 Introduction .......................................................................................................................... I

1.1 Background of the Study ..................................................................................................... I

1.2 Statement of the Problem ..................................................................................................... 4

1.3 Purpose of the Study ............................................................................................................ 4

1.4 Objectives of the Study ........................................................................................................ 5

1.5 Research Questions .............................................................................................................. 5

1.6 Scope of the Study ............................................................................................................... 5

1.6.1 Geographical scope ............................................................................................................ 5

1.6.2 Sut>ject scope .................................................................................................................... 5

l .6.3Tirne scope ......................................................................................................................... 'i

1.7 Significance of the Study ..................................................................................................... 6

CHAPTER TWO ..................................................................................................................... 7

LITERATURE REVIEW ....................................................................................................... 7

2.1 Introduction .......................................................................................................................... 7

2.1.1 Definition of Terms .......................................................................................................... 7

2.1.1.1 The Concept of Taxation ............................................................................................... 7

2.1.2 Tax .................................................................................................................................... 7

2.1.3 Classification of taxes ....................................................................................................... 8

2.1.4 Income tax ......................................................................................................................... 8

2.2 Income Tax Administration in Uganda ............................................................................... 9

2.2.1 Approaches to tax administration ..................................................................................... 9

2.2.2 Small scale business ........................................................................................................ I 0

V

2.2.3 Problems encountered by small-scale businesses in trying to comply with tax policies 11

2.2.4 Tax payer's knowledge ................................................................................................... 12

2.2.5 Negative effects of income tax administration ............................................................... I 3

2.2.6 Fines and penalties .......................................................................................................... 13

2.2. 7 Problems faced in income tax administration ................................................................. 14

2.3 Profitability of Small Scale Businesses ............................................................................. 16

2.3.1 Relationship between income tax administration and profitability of small scale

business .................................................................................................................................... 1 7

CHAPTER THREE ............................................................................................................... 18

METHODOLOGY ................................................................................................................ 18

3.1 Introduction ........................................................................................................ 18

3.2 Research Design ................................................................................................................ 18

3 .3 Survey Population .............................................................................................................. 18

3.4 Sample Size ......................................................................................................... 18

3.6 Data Sources .......................................................................................................... 19

3.6.1 Secondary data collection ............................................................................................... 19

3.6.2 Primary data collection ................................................................................................... 19

3.7. Data Collection Instruments and Methods ........................................................................ 19

3. 7.1 Questionnaire ..................................................................................................... 19

3.7.2 lnterview method ............................................................................................................ 19

3. 7.3 Observation method ........................................................................................................ 20

3 .8 Data Processing and Analysis ............................................................................................ 20

3.8.I Data processing ............................................................................................................... 20

3.8.2 Data presentation, analysis and interpretation ................................................................ 20

l.9 Limitations of the Study .................................................................................................... 21

:::HAPTER FOUR ....................................................................................................... 22

>RESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS ............................. 22

•.O Introduction .............................................................................................................. 22

. 1 Re \, 1 ew o f o b1. ect1. ves .......................................................................................... ................. ?_?_

.2 Range of profits ........................................................................................................ 22

.3 General findings .................................................................................................... 23

.3. l Age of respondents.......................................................................... . .. ::n

3.2 Gender of the respondents .............................................................................................. 24

3.3 Category of respondents ................................................................................................. 25