Abstract

Taxes play an important role in the growth of micro, small and medium enterprises (MSMEs). In the low-income countries like Cameroon, the role of MSMEs is critical in pushing the socio- economic development agenda of the country forward. Therefore, alignment of the tax system to the environment specific MSME growth needs can be considered an important agenda for the political, economic and financial policy makers.

This study applied both qualitative and quantitative research designs where interviews and questionnaires were used. Data was collected from both primary and secondary sources. Data was processed and analyzed using frequency tables and narrative text, to find out the relationship between taxes and performance of Micro enterprises. A total of 50 respondents were considered in Njinikom Sub-Division.

The findings indicated that the performance of Microenterprises is affected by stock levels, capital employed, daily sales and the average amount of taxes paid annually.

Most business owners are aware of  taxes to be  paid,  uncertain  of  the  mode  of  assessment and little assistance is given as regards tax awareness.

The findings revealed the problems faced by the tax payers as regards mode of assessment, collection and tax collectors, inefficiency by tax collectors, loss of equipment, loss of sales and loss of stock as a result of taxes.

Recommendations on impact of taxes included; improvement on the method of collecting taxes, educating the business community about different tax rates, introducing a scheme that allows tax payers to pay the tax liability.

CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

Micro enterprises are usually small individually-owned or family managed businesses offering basic goods and services. Microenterprises tend to lack organizational and management structures, and are generally characterized by uncertainty, innovation and evolution.

Udechukwu (2003) notes that microenterprises are mostly sole proprietorships and partnerships, and only a few are registered as limited liability companies. Micro enterprises generally have a simple management structure, and in many cases the owner is the manager. With few employees who in most cases lack the appropriate skills and competencies. Given the simple management structure and extensive dependence on the owner, the lifespan of the enterprise is often dependent on the longevity the owner and his/her interest in continuing the business.

MSMEs (of which microenterprises constitute the largest proportion) are considered the most reliable engine of development for the less Development Countries (LDCs). This is because they enjoy a wider geographical presence, ensure more equitable income distribution, employ a high number of poor persons, and facilitate diffusion skills (Panitchpakdi 2006). For MSMEs to achieve their goals the government has to provide the necessary infrastructure to the sector. one of the ways through which the government generates income is through taxes paid by MSMEs.

According to Akinsulire (2010), MSMEs accelerate rural development, decrease urban immigration and the problems of congestion in large cities because they have lesser competition by serving dispersed local markets. Moreover they contribute to domestic capital formation; and also play a value-adding role in mobilizing private savings.

Tax is a compulsory and non-refundable contribution executed by government for public purposes and payment cannot be avoided without attracting a punishment and in return of which no gain/quid pro-quo is promised by the government to the tax payer. Payment is not followed by concurrent benefit in return (Balunywa, 1988).

Tax revenue contributes to development and to welfare through three sources; financing public services and social transfers at a high level of quality, reallocating income and offering incentives for more employment and the efficient use of natural resources, (Holban 2007). This notwithstanding the profit generated by MSMEs is for the expansion of their businesses, so their income and need for survival ought to be taken to consideration when designing a  tax policy. To this effect, the tax policy should be one that would encourage MSMEs to move to the formal sector and limit tax evasion.

An efficient tax system encourages growth; investment, innovation, and facilitate international trade and mobility. Assessing the effects of tax systems on MSMEs would include the tax rates, tax burden, incidence, timing and multiple taxes. The considerations of micro enterprises are to minimize administrative burden, ensure compliance, and effects of operating in the informal economy (ITD, 2007).

Oludele 2012 argue that high tax rates and tax complicity discourage the growth of MSMEs and this has an economic effect on the growth of the economy. Taxes increase production cost of goods and services and as a result the final consumers suffer from high prices of these commodities. Mean while, the revenue collected from taxes represents the major funding source for governmental expenditures (Baurer, 2005). If the tax structure is not adequately designed to the specific environmental conditions, it may create a greater burden to the tax- paying organizations and eventually affect the final consumer due to shifting tax ability.

Micro enterprises in developing countries face difficulties when dealing with tax matters because, it is indeed rare not to hear complaints about the complexity and/or ambiguity of the tax laws, high tax rates, multiple taxes, complex tax regulations and local taxes when determining the overall tax burden placed on the business community (Baurer, 2005). This implies that as a policy maker and regulator, the government must consider the factors that could affect the competitiveness of businesses.

“Moreover, despite the contribution that tax can make towards the Gross Domestic Product (GDP), the growth of micro enterprises has to be taken into consideration. This is because micro enterprises play a crucial role in driving economic growth in both developing and developed countries. The situation raises a serious concern about the issue of aligning the tax- planning system to the specific requirements of a particular country’s growth need, as it has to balance both short-term and long-term impact of the policy. This also triggers need for an in-depth study of the different issues, preventing the development and implementation of effective tax policy and systems, particularly in the context of MSMEs (Njemo C. 2014).”

Taxes are broadly divided into two namely; direct and indirect taxes Lawal (1982). Examples of direct taxes include; income tax, corporation tax, capital gains tax, and inheritance tax. While indirect taxes are usually taxes on commodities or services, examples of indirect taxes include; value added tax, excise duties, import duties, purchase tax, and export duties ( Aanu Ojeka1 2012).

For the protection and control of MSMEs operation by the Cameroon government several types of taxes are being imposed which aim in protecting home/ infant industries (protectionism) and also ensure fair competition among micro enterprises, some of these taxes include; tariffs, import duties, excise tax, to name a few. (Njemo C. 2014)

Tax resources are basically the exclusive responsibility of central government, both in terms of collection and allocation of tax resources. The weakness of local taxation is a consequence of the deficiencies in the process of decentralization, and more particularly in the process of financial decentralization (Ayyagari 2005).

1.2 Statement of the Problem

Although there is a general perception that taxes are an important source of fund for development of an economy and the provision of social services, the problems faced are in the area of negative relationship between taxes and the business’ ability to sustain itself and to expand, micro enterprises are faced with the problem of high tax rates, multiple taxation, complex tax regulations and lack of proper orientation or education about tax related issues.

Not minding other challenges that micro enterprises face in developing countries like Cameroon include; inadequate capital, poor technical and managerial skills, environmental effects, multiple taxes and government regulations which most often affect the operation of micro enterprises. These factors have led to increase record of close-up of Micro Small and Medium Enterprise (MSMEs).

1.3 Objectives of the Study Main objective

The main objective of this study is to examine the effects of taxes on the performance of micro enterprises in Njinikom sub division.

Specifically, this study seeks to;

1. Examine the perception of taxation by micro enterprise owners in Njinikom sub division.
2. Assess the stock performance of micro enterprises in Njinikom sub division.
3. Investigate if taxes affect the plough back profits of micro enterprises in Njinikom sub division.

Check Out: Accounting Project Topics with Materials