Effects of Taxation on the Performance of Small And Medium Size Enterprises (Smes) In Tema Metropolis

Abstract

Taxation are known to be one of the main sources of revenue for development of any nation. Taxation is a key policy measure of government and therefore has a direct impact on the operations of SMEs and their activities. In Ghana, Government tax policies targeted at SMEs over the years has not promoted the growth of the sector. Instead of broadening tax network in order to encourage more people to pay taxes, it appears Government is comfortable with increases in tax rates. Excessive increases in tax rates could increase cost of production and eventually lead to a collapse of a business. As tax rates continue to increase, firms tend to adopt survival strategies including; tax evasion and increases in prices of final products. This study examined the effect of the amount of taxes paid by SMEs in the Tema Metropolis on the performance of SMEs using profit, employment and output as a measure. The study administered 205 questionnaires to businesses and using Spearman Rank correlation concluded that, there was a significant but weak correlation between the taxes paid and the performance of SMEs. This means that, taxes have adverse consequences on the profitability of SMEs in Tema Metropolis. The study also found that, SMEs has the potential to create job for youth if some of the barriers to growth are resolve, such as reduction in the taxes, high cost of raw material, access to fiancé, high cost of electricity among others. The study recommended that, government should expand the tax net to rope in all SMEs and reduce the tax rates and amount, implement friendly tax policy for SMEs and give tax holidays, reduce import duty and other taxes as a way to decrease the cost of raw material, and also strengthen the NBSSI and AGI to organize training and workshop to build the capacity of SMEs in Ghana.