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| Taxation Policies and The Development of Small Businesses. A Case Study of Namungoona Lubaga Division, Kampala
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Shema Amos, Babirye Shamirah, Kabanda Richard
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Abstract:
This study examined the relationship between taxation policies and the development of small businesses in Namungoona Lubaga Division, Kampala, Uganda. Small enterprises constitute a large portion of the economic landscape and play a key role in job creation and income generation. However, unfavorable government taxation can constrain their growth and competitiveness. The research aimed to evaluate how various tax regulations and rates influenced the performance and expansion of small firms over a five-year period from 2016 to 2020. A mixed methods approach was employed that included a review of relevant taxation laws and collection of both quantitative and qualitative primary data. Quantitative data were gathered through a survey of 100 small business owners regarding tax compliance levels, profitability, employment figures, and investment levels annually. Qualitative data were obtained through in-depth interviews with 20 participants exploring their perceptions of taxation impacts. Development of SMEs and the tax policy were found to have a significant strong positive relationship (r=0.712, p<0.05). This was interpreted to mean that the better the tax policies, the better the development trends for SMEs. The government should therefore come up with good tax policies on small scale businesses if they are to stimulate their development. The study found that high corporate income tax and value-added tax rates significantly reduced after-tax profits and capacity to reinvest in operations. Furthermore, complex filing procedures discouraged timely payment and subjected defaulters to heavy penalties that constrained cash flows. The study recommends that the government of Uganda should design an effective tax rate in such a way that it is not based on the taxable profits as demarcated in the law but on an economic measure which includes the impact of the tax base.
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