Taxes and Performance of Small And Medium Scale Enterprises in Bundibugyo District, Uganda A Case Study of Bundibugyo Town Council

TABLE OF CONTENTS 

Declaration ................................................................................................................................... i 

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

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

ACKNOWLEDGEMENT ......................................................................................................... iv 

LIST OF TABLES ..................................................................................................................... xi 

ABBREVIATIONS .................................................................................................................. xii 

ABSTRACT ............................................................................................................................ xiii 

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

INTRODUCTION ....................................................................................................................... I 

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

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

1.2 Statement of the Problem ....................................................................................................... 2 

I .3 Purpose of the Study .............................................................................................................. 3 

1.4 Objectives of the Study .......................................................................................................... 3 

1.4.1 General: ............................................................................................................................... 3 

1.4.2 Speci fie: .............................................................................................................................. 3 

1.5 Research Questions ................................................................................................................ 3 

1.6 Scope of the Study ................................................................................................................ .3 

1.6.1 Subject Scope ...................................................................................................................... 3 

1.6.2 Geographical Scope ........................................................................................................... .4 

1.6.3 Theoretical Scope .............................................................................................................. .4 

1.6.4 Time Scope ........................................................................................................................ .4 

1.7 Significance of the Study ...................................................................................................... .4 

1.8 Justification of the study ........................................................................................................ 5 

V 

1.9 Conceptual Framework .......................................................................................................... 5 

CHAPTER TWO ......................................................................................................................... 6 

LITERATURE REVIEW ............................................................................................................ 6 

2.0 lntroduction ............................................................................................................................ 6 

2.1 The Concept of Taxation ....................................................................................................... 6 

2.2 Classification of Taxes .......................................................................................................... 7 

2.3 The Purpose ofTaxation ........................................................................................................ 7 

2.4 Tax Policies ........................................................................................................................... 8 

2.5 Approaches to Tax Administration ........................................................................................ 8 

2.5.2 Assessment ofTaxes ........................................................................................................... 9 

2.6 Small and Medium Scale Enterprises .................................................................................... 9 

2.7 Fines and Penalties ................................................................................................................ 9 

2.8 Performance of Small and Medium Scale Enterprises ........................................................ 10 

2.8.1 Taxation and Business Performance ................................................................................. I 0 

2.8.2 Taxes and Profit Levels .................................................................................................... 11 

2.8.3 Taxation and lnvestment.. ................................................................................................. 11 

2. 9 Problems Encountered By SM Es in Trying To Comply With Tax Policies ....................... 11 

2.10 Tax Payer's Knowledge ..................................................................................................... 12 

CHAPTER THREE ................................................................................................................... 13 

METHODOLOGY .................................................................................................................... 13 

3.0 lntroduction .......................................................................................................................... 13 

3.1 Research Design .................................................................................................................. 13 

3.2 Study Population .................................................................................................................. 13 

3.3 Sampling .............................................................................................................................. 13 

3.3.1 Sampling Design ............................................................................................................... 13 

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3.3.2 Sample Size ...................................................................................................................... 13 

3.3.3 Sampling Procedure .......................................................................................................... 14 

3.4 Study Variables .................................................................................................................... 14 

3.5 Sources of Data .................................................................................................................... 14 

3.5.1 Secondary Data Collection ............................................................................................... 14 

3.5.2 Primary Data Collection ................................................................................................... 15 

3.6 Methods of Data Collection and Instruments ...................................................................... 15 

3.6.1 Questionnaires .................................................................................................................. 15 

3.6.2 Interviews ......................................................................................................................... 15 

3.6.3 Observation ....................................................................................................................... 15 

3.7 Data Processing Analysis and Presentation ......................................................................... 16 

3.7.1 Data Processing ................................................................................................................ 16 

3.7.2 DataAnalysis .................................................................................................................... 16 

3.9.3 Data Presentation .............................................................................................................. 16 

3.9 Limitation of the Study ........................................................................................................ 16 

CHAPTER FOUR ..................................................................................................................... 17 

PRESENTATION, ANALYSIS AND INTERPRETATION OF RESEARCH FINDINGS ... 17 

4.0 lntroduction .......................................................................................................................... 17 

4.1 Background Characteristics of the Respondents ................................................................. 17 

4.1.1 Age of the Respondents .................................................................................................... 17 

4.1.2 Response on the Level of Education of the Respondents ................................................. 18 

4.1.3 Findings on the Gender of Respondents ........................................................................... 18 

4.1.4 Findings on the Marital Status of the Respondents .......................................................... I 9 

4.2 Findings on Performance of the Business ........................................................................... 19 

4.2.1 Response on Stock Levels of Held in the Business .......................................................... 20 

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4.2.2 Shortage in the Stock Levels ............................................................................................ 20 

4.2.3 Stock Levels and Profitability ......................................................................................... .21 

4.2.4 Average Daily Sales ......................................................................................................... 21 

4.2.5 Capital Employed ............................................................................................................. 22 

4.2.6 Daily Expenses ................................................................................................................ .22 

4.2.7 Average Amount of Tax ................................................................................................... 23 

4.3 Awareness of the Tax Payers .............................................................................................. .24 

4.3.1 Tax Awareness ................................................................................................................. .24 

4.3.2 Tax Assessment ................................................................................................................ 24 

4.3.3 Methods of Record Keeping ............................................................................................ .25 

4.3.4 Assistance As Regards Tax Awareness ............................................................................ 25 

4.4 Problems Faced By Tax Payers ........................................................................................... 26 

4.4.1 Mode of Assessment, Collection and the Tax Collector .................................................. 27 

4.4.2 Efficiency and Tax Officers .............................................................................................. 28 

4.4.3 Specific Effects of the Taxes on Businesses ..................................................................... 28 

4.4.4 Suggestions from Tax Payers ........................................................................................... 29 

CHAPTER FIVE ....................................................................................................................... 31 

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS .................... 31 

5.0 Introduction ......................................................................................................................... .31 

5. I Summary of Findings ......................................................................................................... .31 

5.1.1 Performance of Small and Medium Scale Enterprises in Bundibugyo Town Council ... .31 

5.1.2 Tax Payers Are Aware Of All Their Tax Obligations and Policies ................................ .32 

5.1.3 Problems Faced By Tax Payers ....................................................................................... .32 

5.3 Recommendations ................................................................................................................ 33 

5.4 Areas for Further Research .................................................................................................. 34 

ABSTRACT

The study was carried out to find out the impact of taxes on performance of Small and Medium Scale Enterprises in Uganda (SMEs), taking a case study of Bundibugyo Town Council. The study aimed at assessing the performance of Small and Medium Scale Enterprises in Bundibugyo Town Council, finding out if tax payers are aware of all their tax obligations, policies and problems affecting them as well as their businesses. 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 analysed using formal tables, pie charts, narrative text, and correlation to find out the relationship between the impact of taxes and performance of Small and Medium Scale Enterprises. A total of 60 respondents were considered out of the entire population in the Town Council. The findings indicated that the performance of SMEs is affected by stock levels, capital employed, daily expenses, daily sales and the average amount of taxes paid annually. Most business owners are aware of taxes paid, uncertain of the mode of assessment and little assistance is given as regards tax awareness. The findings revealed the problems faced by the tax payers as regards mode of assessment, collection and tax collectors, inefficiency by tax collectors, loss of equipment, loss of sales and loss of stock as a result of taxes. Recommendations on impact of taxes included; improvement on the method of collecting taxes, educating the business community about its different tax rates, introducing a scheme that allows tax payers to pay the tax obligation in installment, and finding a way of assessing the tax the SM Es should pay early in the financial year in order to give enough time to the business to pay up their duties rather than make an assessment and demand for payment spontaneously.