Effect of Taxation on the Performance of Small and Medium Scale Enterprises in Taraba State, Nigeria

Abstract

This study examined the effect of taxation on Small and Medium Scale Enterprises performance in Jalingo Metropolis, Taraba State. The study focused on investigating the effect of multiple taxes, tax compliance cost and tax rates on the net profit margin of SMEs in Taraba State. The study was hinged on the business growth theory. The survey design was adopted for the study and a questionnaire was issued to the sampled 103 SMEs operators out of which 89 were successfully returned. The data were presented using descriptive statistics and diagnostic tests carried out using Breach Godfrey serial correlation test, skewness and kurtosis and Pearson correlation.  The ordinary least square regression (OLS) was used in testing the hypotheses. The findings of the study showed that multiple taxes have a significant effect on the performance of SMEs, tax compliance cost has a negative and insignificant effect on SMEs performance while tax rate has a positive and significant effect on SMEs performance in Taraba State.  The study recommends among others that the tax burden on SMEs should be reduced by the government. Taraba State Board of Internal Revenue Services should monitor tax collectors and ensure multiple taxes are not levied on SMEs. This should be done by an overview of taxes levied by the state and local government to avoid duplicity. On the tax compliance cost, the Taraba State Board of Internal Revenue Services should initiate easier and more convenient ways of paying tax and should sensitize SMEs more on tax issues to reduce tax compliance costs on SMEs, especially in form of consultation. Tax rates should be reduced through a legislative process since the increase in tax rates prompts a decline in performance.  Tax agencies like the Board of Internal Revenue Services should ensure that SMEs are taxed based on their profit capacity.