Background to the Study
policy towards SMEs is an important factor that needs to be considered because
SMEs are a crucial sector of the economy, despite being owned by individuals
and are smaller in size than larger firms. In addition, they improve the
standard of living of a majority of the population. Therefore, revenue
authorities have to take all of the above features into account when
establishing the components of taxation policy that are associated with SMEs.
Despite the vibrancy of SMEs, they have a major negative characteristic: they
often have an extremely short life span. Some of the factors that bring about
shutting down of SMEs sooner than expected after their inception are tax
related, including multiple taxation and enormous tax burdens. The perception
of SMEs by policy makers often fails to acknowledge their significance as a
mechanism of economic growth and development. Regarding SMEs as insignificant
enterprises that have no impact on the economy is an oversight that can no
longer be justified. This is because SMEs merely require a favorable regulatory
environment in which to conduct business, and they will demonstrate their
potential for profitability and growth. Thus they need to be granted a measure
of flexibility in taxation which will allow them to maximize their potential.
The profitability and growth of SME can be assessed through the parameters of
sales revenue, asset accumulation, and returns on capital, therefore it is
important to find out the effect that taxation policy has on them.
to (Holban, 2007), taxation can contribute to development and to welfare
through three sources; by generating sufficient funds for financing public
services and social transfers at a high level of quality, by offering incentive
for more employment and for an efficient and lasting use of natural resources,
and by reallocation of income. However, this has to be balanced against the
requirements of SMEs income and their need for survival. Having insufficient
profitability will render the growth of SMEs impossible. Therefore, any
prospective tax policy will have to evaluate the factors that encourage
non-compliance with tax obligation by SMEs. Although it has been noted that
taxation is a challenge to the productivity and growth of SMEs, this does not
mean that SMEs should not pay tax. Without tax revenue, governments will be
unable to facilitate the environment in which SMEs thrive, therefore it is in
SMEs own best interest to pay taxes. The government has to collect revenue in
order to finance its expenditure. Income obtained from taxation of individuals
and businesses is used to run governments and to build and maintain
infrastructure such as good roads, water supply, and electricity which are
essential for the smooth running of businesses. With the above in mind, the
goal of the current study sought to determine the importance of government
taxation policy on profitability of SMEs.
of the Problem
doubt about the general view that tax is a significant source of revenue for economic
growth and development as well as provision of basic amenities. However, the challenges
facing this assertion are in the area of negative correlation between taxes and
the business’ ability to sustain and expand itself. The problem confronting
SMEs are in the area of high tax rates, multiple taxation, complex tax
regulations and lack of proper enlightenment or education about tax related
issues. Other problems that confonting SMEs in Nigeria are insufficient capital,
managerial and technical skills, environmental effects and government policies
which affect the smooth operation of SMEs throughout the country especially
this issue of taxation which is a worm eating deeply and the large chunk of
revenues generated by these SMEs for their growth and survival. These have led
to increase in record of dearth of Small and Medium Scale Enterprise (SMEs). It
is on this foundation that this study seeks to examine effect of tax payment on the performance of smes by using selected SMEs
in Kano, Nigeria.
1.3 Objectives of the study
objective or main objective of this study is to examine effect of tax payment on the performance of smes by using selected SMEs
in Kano, Nigeria. The specific objectives are:
1. To assess the performance of small scale business
enterprises in Kano State.
To determine the tax policy used to
administer tax on small-scale business enterprises in Kano State
To establish the types of tax that
affects the growth of small-scale business enterprises in Kano State
1.4 Research Questions
following are some of the questions which this study intends to answer:
What is the
performance of small scale business enterprises in Kano State?
What is the tax policy used to
administer tax on small-scale business enterprises in Kano State?
What are the types of tax that affects
the growth of small-scale business enterprises in Kano State?
following will be the research hypotheses to be tested for this study:
There is a significant relationship
between taxation and SMEs’ survival.
There is no significant correlation
between taxation and SMEs growth
1.7 Significance of the study
findings of the study are significant on the following ways;
scholars and researchers, the findings of the study are expected to contribute
to the existing literature about taxation and the effect it causes to the
economy as a whole.
the tax authority and government, the study will guide them in adjusting tax
policies so that they suit requirements of small scale businesses.
future academicians especially of Nigeria University students, the study will
help in gaining insight about taxes and performance of small scale business
accomplishment of the study will enable the researcher to acquire hands on
skills about processing of research work and data analysis. This proficiency
will enable the researcher to handle such related work with a lot of precision
1.7 Scope of the Study
The study covered small scale
businesses in Kano State. Specifically, the study investigated the performance
of small scale businesses, the awareness of the tax payers regarding their
obligations, problems faced by the tax payers and the relationship between the
taxes paid and the performance of the small scale businesses.