Abstract

Taxation plays an important role in every economy as far as development in many ways is concerned. Nothing big started big, they were once small. Before an economy reaches a Boom, it should have experienced some level of depression.

Taxation plays a critical role in the growth of small and medium enterprises (SMEs) especially in Low-income countries like ours Cameroon in pushing the socio-economic development of the country forward. The study was carried out to find out the impact of taxes on the Growth of small and medium-sized enterprises in Cameroon (SMEs), taking a case study of the Buea Municipality, finding out if taxpayers are aware of all their tax obligations, policies, and problems affecting them as well as their businesses.

The study applied both qualitative and quantitative research designs where interviews and questionnaires were used.  Data were collected from the primary source.  Data were processed and analyzed using formal tables, charts, narrative text, and correlation to find out the relationship between the impact of taxes and the performance of SMEs.

A total of 50 respondents were considered out of the entire population in the Buea Municipality with all 50 returned.  The findings revealed the problems faced by the taxpayers as regards mode of assessment, tax obligation, spending’s in paying tax, retardation of economic activity, the purchasing power of the taxpayer.

Recommendations on the impact of taxes included; improvement on the method of collecting taxes, educating the business community about its different tax rates, introducing a scheme that allows taxpayers to pay the tax obligation in installment,  and finding a  way of assessing the tax the SMEs should pay early in the financial year in order to give enough time to the business to pay up their duties rather than make an assessment and demand for payment spontaneously.

CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study 

Small enterprises are usually individually owned or family-managed businesses offering basic goods and services. Small enterprises are mostly sole proprietorships and partnerships and only a few are registered as limited liability companies.

They generally lack management and organizational structure and generally have a simple management structure and in many cases, the owner is the manager, with few employees and who in most cases lack the appropriate skills and competence. Because of this simple management structure, the life span of Small enterprises depends on the interest of the ownership interest in continuing the business.

Studies have shown that the world’s economy has been tremendously developed and this is linked with the activities of Small and Medium Enterprises (SMEs), especially in developing countries. Small and medium enterprises (SMEs) are considered the backbone of every economy.

They have always been considered an important force for economic development and industrialization in smaller economies (Aryeetey & Ohene, 2004 and Oludele & Emile, 2012). These small enterprises have increasingly been recognized as enterprises that contribute considerably to the creation of jobs, economic growth, and eradication of poverty in Africa.

According to the report prepared by the World development, the creating of ‘‘sustainable’’ jobs and opportunities for smaller entrepreneurs are the key strategies to take people out of poverty. They are mostly private enterprises. According to Saravanan et al (2008) SMEs comprise over 90 percent of business operations and contribute to over 50 percent of the African employment and gross domestic product (GDP).

Clusters of SMEs are little developed in Africa and are concentrated mainly in South Africa, Kenya, Zimbabwe, Tanzania. In South Africa, SMEs constitute 22 percent of the gross domestic product in the year 2003. A study carried out by the Federal Office of Statistics shows that in Nigeria, small and medium enterprises make up 97 percent of the productive units of the economy.

In Uganda, 90 percent of private-sector firms are SMEs with 80 percent being located in urban areas and are largely involved in trade, agro-processing, and small manufacturing (Hatega, 2007), these SMEs contribute approximately 75 percent of the gross domestic product of (GDP) and employ about 2.5 million people. Congo has 2100 firms in the formal sector and 10000 firms in the informal sector, SMEs constitute about 80 percent of these firms in total.

A survey carried out in 1997 in Benin showed that of the 666 SMEs counted, half were in commerce and the rest were mostly in construction, or in pharmacies and restaurants. Only 17 percent were in manufacturing.

In Morocco, 93 percent of all industrial firms are SMEs and account for 38 percent of production, 33 percent of the investment, 30 percent of exports, and 46 percent of all jobs. These small enterprises also contribute about 20 percent of Senegal’s national value-added.

Small enterprises in Ghana are said to be a characteristic feature of the production landscape and have been noted to provide about 70 percent of Ghana’s gross domestic product and they account for over 90 percent of business (Aryeetey, 2004).

It is reasonable to state that SMEs, therefore, have a crucial role to play in stimulating growth, generating employment, and contributing to poverty alleviation. SMEs in Africa also contribute to job creation. In Nigeria, SMEs account for about 70 percent of industrial jobs.

In Kenya, SMEs employed some 3.2 million people in 2003. SMEs in South Africa provided for over 55 percent of total employment in 2003, in 2007 there were about 1.5 million SMEs in South Africa. In Ghana, SMEs contribute to about 85 percent of manufacturing employment (Aryeetey, 2004).

The promotion of these Small and Medium Enterprises will serve to increase growth and thus implying a reduction in poverty. The faster the economic growth that is achieved, the greater the chances of reduction in poverty in any economy (Dollar & Kraay, 2002). Thus in developing countries like Cameroon, a need to improve the environment of those SMEs is urgent.

The SME promotion can also help to develop the private sector economy allowing it to function more efficiently. Improving or making a favourable environment for SMEs has become the paramount development strategy of many developing governments and has been increasingly given emphasis by the international community.

Taxation in Cameroon and indeed in the other African countries is not strange because even before independence, taxes were collected by colonial masters and even our Chiefs/ fons. Taxes serve as a source of income for every government and no government can do without taxes.

Taxes come to sustain the vision of a better economy in every nation, governments use them to develop their nation and better up the lives of its citizens. The government in view of widening the tax base and earn more as tax has also included these SMEs in this range.

Since in many economies SMEs occupy a greater portion of the business they also serve as a greater source of income through taxes. But since these enterprises are small and need to survive and grow the government has to be mindful of the type of taxes they impose on these small enterprises. Taxes should be imposed in such a way that puts their need and growth for survival. Tax policies should be made in a way that encourages the growth of SMEs.

1.2 Problem Statement

Taxes generally imposed some changes on Small and Medium enterprises.

In Cameroon, the government formulates and implements various policies aimed at increasing job opportunities, development of infrastructure as well as income generation through the creation of new SMEs and improving the performance and competitiveness of existing ones. From the economic point of view, taxes increase the production cost of goods and services which eventually leads to higher prices of goods and services to the final consumers.

Taxes collected as Revenue from these organizations represent the major funding source for government revenues (Baurer, 2005). When the tax structure is not adequately designed for specific environmental conditions the tax-paying organization will feel a greater burden in paying the tax and eventually the final consumer because of the ability of the enterprise to shift the tax burden to the final consumer. Though tax serves as an important source of government income, the problem comes when there is a negative relationship between these taxes and the SMEs ‘ ability to sustain themselves and grow.

Since SMEs are small, they generally make small incomes, and in most cases, for them to grow they need to plow back profit to serve as another source of capital. When taxes get involve they generally feel a greater impact because of the small nature of the business. From the above, we can see that taxes from one way to another influence the growth of SMEs.

1.3 Research Questions

The study is guided by the following research questions;

1. What are the problems associated with the taxation of SMEs in Cameroon?
2. What are the taxes levied on SMEs?
3. What is the relationship between tax paid and the growth of SMEs?

1.4 Objectives Of The Study:

1.4.1 Main Objective

The main objective of the study is to examine the impact of taxation on the growth of SMEs.

1.4.2 Specific Objectives.

1. To identify the problems associated with the taxation of SMEs.
2. To identify the various taxes levied on enterprises in Cameroon.
3. To examine the relationship between tax paid and the growth of SMEs.

1.5 Hypothesis

For this research to advance in a more reliable way we need to state some

hypotheses. The hypothesis of this research is stated below:

Ho (null hypothesis): Taxation does not have a significant effect on the growth of SMEs.

Ha (alternative hypothesis): Taxation has a significant effect on the growth of SMEs

 

Further Readings

TAXATION OF SMALL AND MEDIUM SIZE ENTERPRISES IN BUEA. THE PERSPECTIVE OF THE ANGLOPHONE CRISIS