The Effect of Taxation on The Gross Turnover of SME's in Uganda

Abstract

This study was undertaken to assess the relationship between tax liability and gross turnover of small and medium enterprises over a period from 2002 to 2018 in Uganda. It aimed to determine the relationship between taxation and gross turnover of small and medium enterprises, as well as economic growth. The specific objective of the research was to evaluate the effect of tax rates on the gross turnover of small and medium enterprises. Primary data was obtained from respondents inform of surveys while the secondary data, tax liability and gross turnover, was collected from Uganda's revenue authority sources. The study adopted the Granger causality test, unit root test, and stability test and the following findings were determined: first, taxation negatively affects the gross turnover of SMEs.The outcome of the Granger causality test indicates that there is a statically significant negative relationship from taxation to gross turnover by 0.0372 at a 95% significance level.  Second, there is a negative relationship between taxation and gross turnover which hurts the growth of the economy. This means an increase in taxation causes a decrease in economic growth. The study concluded that the effect of taxation on the gross turnover of SMEs is due to high rates of tax on one hand and taxpayers who don't know their tax obligation on the other hand. The study provides evidence that help policy makers and the state to balance the requirements and the objective of SMEs for profit and growth. There is a need for tax restructuring, as well as tax education to taxpayers.