Impact of taxation policy on the growth of small and medium enterprises
The population of this study will be managers, owners, and employees of small and medium enterprises. This study will use stratified sampling technique to select the sample to be used in the study of 626 participants. Questionnaires will be used to collect primary data. Data obtained from the survey will be analyzed using descriptive and multiple regression models. The study expects to see a correlation between taxation and growth of small and medium enterprises. 8 million SMEs in 2016 and this account for 99% of all businesses in the USA. SMEs may also be defined regarding tax returns filled annually. Some studies show that SMEs suffer challenges caused by lack of capital which may be long term or short term. Most of such businesses obtain loans through their business viability or based on how health their businesses are regarding cash.
Small and medium enterprises (SMEs) play a big role in the economy of the world. Tax policies should be put to encourage the growth of small and medium enterprises. Most experts assume the role that SMEs play in the economic growth of any country. They are taken with less sincerity, and this implies that they no longer serve their purpose in economic growth. If SMEs were to be given a conducive environment to run, then they can contribute greatly to the growth of a country. They can transform the economy in an equal way. The government should also understand that there is a need to remove the taxation of SMEs since the cost of collecting the taxes may be too high to the point of outweighing the benefits of the revenue collected.
SMEs form cores in the economies of almost every country globally. Any factor which may affect its growth should be considered as well. From the researches done previously, experts are checking for tax laws to reduce its vast impact on the USA economy. Under the current situation, the USA has federal, state and local government and each level has its taxes. In the recent years, the development of SMEs has been committed to the contribution of GDP, and this forms the basis of the government more intervention. Taxation is used by the government of the USA to provide services to its citizen. Over the last decade, tax performance has increased significantly which enables it to finance its budget. Due to the importance of taxation in the economy, debates to do with tax are of much relevance to researchers, economy and the government.
Available regulations and tax policies are one of the major reasons for hindrances of growth of small and medium enterprises. The administration of income tax contributes to revenue collection and the profit rate of every entity. If any state decides to increase tax systems, small businesses get the tax burden. It is worth to know that taxes are administered poorly, it is based on estimates, some information about small businesses is missing completely, there is the presence of tax overcharge and penalties and also has incomplete records. The challenges faced by taxation hinder the survival and growth of SMEs. Human factors, marketing factors, and financial factors are crucial for the survival of small business ventures. 3 Research hypothesis • Tax rates have no significant effect of on growth of small and medium enterprises.
• Tax policy has no significant effect on the growth of small and medium enterprises. • Different types of taxation have no significant effect on the growth of small and medium enterprises. 4 Research questions • Does tax rate has any significant effect on the growth of small and medium enterprises • Does tax policy has any significant effect on the growth of small and medium enterprises • Does different types of taxation is having any significant impact on growth for small and medium businesses? CHAPTER TWO LITRATURE REVIEW The chapter covers areas following area: the theory of taxation, an overview of the tax policies and the growth of SMEs, the empirical literature review, challenges faced by the SMEs and the summary of the literature review and gaps.
The theory in which the study is based is the ability to pay theory of taxation. The approach for measuring equity of sacrifice is not clear since it is measured in absolute terms, proportional terms, and in marginal terms. The theory ensured there is equal sacrifice by ensuring all tax payers surrenders at least same degree of utility that he obtains from his income and that each person gives up the same level of utility from the last unit of his income in a respective way. Tax policies and the growth of SMEs The Small and Medium Size Enterprises play a critical role in the growth of an economy as it provides employment opportunities to large number a country’s population.
According to Atawodi & Ojeka,(2012), the tax policy used by a government depends either on the use of special tax preference or through embracing the start-ups of small companies. Tomlin (2008), argued that the resources that the small companies channel towards the tax compliance could be used to enhance it future growth. K,. et al,(2016) on the relationship between the tax policy and the growth of SMEs in Nigeria and established that the small and medium enterprises mainly contributed to the growth and development of Nigerian economy. The findings of the study showed inverse association between the tax policies and the business’s ability to sustain its growth. It was recommended that the government should reduce the rate of taxes imposed on the enterprises so as to encourage their growth.
Challenges facing SMEs The ability of the small and medium enterprises to expand is hindered by many factors some of which are beyond the control of its management. A sample of six twenty-six was used. Stratified sampling approach will be used in this study. Under stratified sampling approach, the researcher will divide the targeted population into small groups called strata. In this study, the researcher will divide the population into groups of employees, owners and managers. From each group, then simple random sampling will be used to get the probability sample from each group. Cronbach alpha shows how variables are correlated and whether they are positively or negatively correlated. For a study to be adequate, therefore, Cronbach alpha should be greater than 0.
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