Abstract       

One of the most important sources of revenue for every Government is a tax which can be described as a citizen’s way of expressing his or her contribution towards societal interest. A citizen in this case could be a physical or artificial person.

These taxes have different impacts on each of these which could be advantageous or disadvantageous. Taxes most especially direct taxes often lead to a better distribution of income and wealth as well as protection of infant industries.

Protection of these industries is done by either giving subsidies or exempting these enterprises from some taxes but ironically these small and medium-size enterprises still remain stunted and some have even gone out of business because most of the taxes they are liable to are normally so many and high so much so that profits which would have been reinvested into the business is taken in the form of taxes.

Above all most entrepreneurs of small and medium-sized enterprises are highly ignorant of tax laws and policies which make it even very impossible for them to avoid tax. This piece of work is therefore structured to investigate the impact taxes have on the growth of small and medium-size enterprises in the Buea municipality.

It is guided by the main and specific objective all to give the researcher a focus. The specific objectives are to assess the degree of awareness taxpayers have about their tax liability, assess the impact of taxes on growth, and provide possible recommendations.

Questionnaires are used to collect data, descriptive methods are used for presentation with the aid of tables and bar charts. The chi-square technique is used to analyze the relationship between the variables (taxes and growth).

From the analyses made, it can be clearly seen that taxes significantly impact the growth of small and medium-size enterprises due to high taxes and the numerous nature of it. Also, as per the affirmation of respondents, most of them are ignorant of the tax system.

It is therefore recommended that proprietors of small businesses should learn more about these taxes so they can avoid them. as much as possible and the government too should reduce the number levied.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Small and medium-sized enterprises are an important force for economic growth and industrialization in most developing countries the world over (Helmsing and Kolstee, Mead and Liedholm, 1998, 1999; Mclyntire and Dallago, 2003).

It has increasingly been noticed that these enterprises contribute greatly to poverty alleviation and job creation leading to the growth of the economy as a whole. As per the 2005 development report, creating sustainable jobs for micro-entrepreneurs is the key pathway out of some economic evils like poverty alleviation and unemployment (World Bank, 2004)

There is no accepted worldwide definition of small and medium-size enterprises (Hooi, 2006). In Cameroon, definitions are based solely on fixed quantitative measures like the total number of workers, the total amount of capital, the total number of assets, and lately by determining the level of sales or turnover (Hashim and Abdullah, 2000).

According to the third industrial master plan (2006), small and medium-sized enterprises in the manufacturing sector are defined as “enterprises with full-time employees not exceeding 25million”.

Whereas in the primary and service sectors they are defined as enterprises with full-time employees not exceeding 50 persons or annual turnover or sales not exceeding 50million francs. These small and medium-size enterprises account for about 99.2% of the business world, while larger firms occupy only 8% (Development Statistics, 2003).

They are primarily represented in the service and agricultural sectors with the proportions of 80.4 and 93.3% respectively. The manufacturing sector also displays the same trends (Normal, 2007).

Small scale businesses can better be described than defined (Beaver and Ross, 2002). This description could be in terms of ownership and operation as some of them are independently owned and operated.

Also, their capital contribution is from a limited number of individuals, operate in a local area, and probably employ the greatest portion of the population in developing economies (Sedco, 2004).

Over the years, small and medium-sized enterprises have continued to act as an engine of economic growth. These include internal competition and entrepreneurship which brings in benefits to the economy as a whole (Koushi, 2008).

This is seen in terms of efficiency and innovation which result in quality goods produced and consequently leads to economic growth as well the standard of living of the citizens will be changed as well (Bech et al, 2005). Another reason why they produce better output is that they strive to gain a greater share of the market.

One of the highest lives-impacting contributions of small and medium-size enterprises is the help they give concerning employment creation and poverty alleviation. Employment levels in Cameroon lie between 50 and 60% of the labor force (Nyoni, 2010).

This is because they are more labor-intensive and so employment opportunities are available at reasonable rates remuneration. Also since they employ even poor households and women with few alternative sources of finance, it has led to a more equitable distribution of income than for larger firms. This has greatly helped in alleviating poverty to a certain extent (Schlogl, 2004).

Small and medium-size enterprises also contribute to the building of a systematic productive capacity. They help to absorb productive resources at all levels of the economy and so contribute to the establishment of a dynamic and resilient economic system in which both small and large firms are interlinked (Beaver, 2000).

This is because; large firms may at times depend on small and medium-size enterprises for their raw materials especially for those in the private sector. Those in the manufacturing sector tend to depend on them while some small-scale businesses also need some of their products for their operations (Normal, 2007).

Also, small-scale businesses tend to be more widely dispersed than larger firms and thereby support the development of and diffusion of an entrepreneurial spirit and skills consequently leading to a reduction in economic disparities between rural and urban areas (Janator, October 2009).

Small and medium-size enterprises also play a vital role in the development of the Cameroon economy in that, most of them are traders and service providers to primary industries. Furthermore, a good number of small-scale businesses are also producers of finished goods and services. Collectively, therefore, they contribute to the growth of manufacturing, service, and agricultural sectors in terms of output, value-added, and employment (Hashim and Wafa, 2002).

Also, one of the things that are really fostering economic growth through the existence of small and medium-size enterprises is that they are more responsive to market needs than larger firms (Crusher, 2011). This is because they are more responsive to market changes in consumer needs and wants can be easily adjusted since their scale of operation is not too big.

Despite all these contributions by small and medium-sized enterprises, a number of mutilating factors still plaque their growth and performance. These include a lack of adequate managerial skills (Shane and Stwart, 2002).

It has been discovered by most scholars and researchers that business s performance is closely linked to the managerial skills of the sole proprietor (Inkoun, 2003).

Another consequence of this lack of managerial skills is that mistakes are made by management during the preparation of stewardship accounts (Lewis, 2008). This is a weakness because management tends to make wrong decisions since the base to is faulty.

Also, business information provided by small and medium-size enterprises to potential funders for analysis before making decisions on whether to fund certain projects or not is a cause for concern. Business information reduces asymmetry.

As a result, a comprehensive business plan reduces risk perception and so there is a likelihood of obtaining capital increases. A negative perception by potential lenders has negatively impacted the growth of small-scale businesses (Green et al, 2002).

In addition, small and medium-sized enterprises are often self-financed as they find it difficult to meet stringent demands of collateral securities which they cannot readily afford (Nixon, 2000). This weakness restrains their capital as that gotten from other sources is not enough to enhance growth.

Another constraint that is a major hurdle to the growth of small and medium-size enterprises is the government regulatory policy which is very cumbersome and unattractive (Koushi, 2008). This includes start-up costs and licensing regulatory requirements (World Bank, 2004). This problem of unattractive tax rates leads to a portion of the revenues which would have been retained the business to ensure growth and sustainability being given out in the form of taxes.

This problem also affects the lives of consumers negatively because of the shifter ability of taxes. They tend to pay higher taxes which increases their cost of living (Ramis, 2002), therefore retarding economic growth as well.

Having seen the significant role small and medium size enterprises play in the economy, the government of Cameroon has involved herself into various measures to promote their growth and sustainability. These measures range from the creation of ministries to the opening up of a guarantee fund.

In Cameroon, there is the ministry of social economy and handicraft and that of small and medium-sized enterprises. These ministries are all out to solve the problems of small and medium-sized enterprises. to an extent.

Also in relation to finance, the government has allowed a protocol to be signed between the African guarantee fund and some banks. The banks involved in this deal are Eco-bank, Société Generale du Cameroon (S.G.C), and Afriland First Bank.

This initiative was concretized and signed in Douala on the 31st of October 2013 (Cameroon Tribune, Wednesday, October 31st2013). The result of this was a reserve of 50 billion francs set aside to be given to small and medium-sized enterprises at low rates of interest, which is just 10% to interesting enterprises which are members of a cartel.

The main reason why deal this deal was signed is to facilitate access to finance (Janator, 2013). Even though financial experts hold that the problems are mostly due to lack of guarantee, accountability, and strict bank conditions that at times limit access to financing and as such a measure to circumvent the hurdles, the bank pool will far from providing just investment financing to harmonizing and simplifying procedures to obtain a loan.

The African guarantee fund will vulgarize the arrangement, train mobilize and select eligible enterprises, and as well provide necessary logistics for administrative functioning (Janator, 2013).

1.2 Problem statement

Over the years, small and medium-sized enterprises have been facing many problems which affect their survival and as such, have remained stunted, and most often than not some have even ceased to exist.

Those that even manage to exist have remained at a fixed point of development as their incomes are more or less equal to their expenditures. Taxes are one of the causes of this mess.

Even though other factors such as inadequate finance, low levels of technology, and other factors plaque their survival, taxes have remained a cankerworm deeply eating their revenues resulting in retardation in their growth as it is little or no revenue to be plowed back into the business.

Also, taxation authorities often go about sealing doors of businessmen which results in some days passing without the business being carried out and consequently affects their incomes too. This problem could even be seen as caused by the failure of entrepreneurs to declare their incomes early enough for taxes to be evaluated as a result of ignorance.

Moreover, in cases where taxes are not declared and paid promptly, taxation authorities resort to the seizure of property. This has a relatively high incidence on these businesses because they are mostly infants trying to survive.

Further, for commodities whose raw materials have been taxed, their cost of production is often high leading to high prices for their final product. This ends up discouraging consumers from consuming that commodity causing them to switch to available substitutes which forces them out of business and consequently low expansion and survival resulting in a high death rate of these enterprises.

Although both the government and the businessman are important actors in the economy, there is a trade-off in their objectives. While the government seeks to maximize revenue, the taxpayer tries to minimize his tax liability as much business has disabled entrepreneurs from sustaining and expanding their businesses.

This has resulted to some going out of business. It is therefore against this background, that this study is set to provide answers to the following questions:

1.3 Research Questions

1. Do taxes really have an effect on the growth of small and medium-sized enterprises?
2. Do other variables such as managerial skills help in enhancing the growth and sustainability of small and medium-sized enterprises?
3. Are taxpayers fully aware of their tax obligations and policies?

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