Effect of Value Added Tax on Financial Performance of Small and Meduim Enterprises in Mombasa County
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Date
2020
Authors
Omar, Mahmud Ali
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
The serious decline in financial performance of small enterprises in recent years had led to a decrease in profit available for tax obligation to the government. The need for small business enterprises to generate more returns from its internal sources has therefore become a matter of extreme urgency which has been linked with taxation of small business enterprise, especially in developing countries. Failure of small business enterprise to grow has been a concern for the law makers, many business closed down before their fifth anniversary as a result of tax related issues, coming from multiple taxations hence enormous tax burdens. The study therefore sought to investigate the effect of value added tax on financial performance of small and medium enterprises in Mombasa County. The specific objectives guiding the study were to determine the effect of zero-rated value added tax on the financial performance of small and medium enterprises in Mombasa County. To ascertain the effect of exempt rated value added tax on the financial performance of small and medium enterprises in Mombasa County and to assess the effect of standard rated value added tax on the financial performance of small and medium enterprises in Mombasa County. The main theories were benefit theory, the cost of service theory and ability to pay hypothesis and adopt descriptive cross-sectional study. The target population was small and medium enterprises in Mombasa County and a sample size was selected using stratified random sampling technique. Structured questionnaire was used to collect data while descriptive and inferential statistics used to analyze the findings using Statistical Package for Social Sciences. The study revealed that there exists a direct effect of value added tax on Financial Performance of Small and Medium Enterprises in Mombasa County. Change in value added tax by increasing is attributed to deterioration in the performance of the SMEs financially. Individual variables i.e. zero-rated supplies, exempt supplies and standard rated supplies contributes directly to the cumulative profitability and resultant service quality to the customer. The study recommended that for an effective tax system, the Kenyan government may need to consider allowing input tax credits i.e. reducing the taxes paid on inputs from taxes to be paid on output. Most quoted consumer goods firms’ today battle with dwindling revenue as consumers should be moved to cheaper options.
Description
Tax Administration
Keywords
Financial Performance, Zero-rated Supplies, Standard rated Supplies, Exempt Supplies