Tax Policy and the Growth of SMEs: Implications for the Nigerian Economy
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Small and Medium Enterprises play a very important role in development of the Nigerian
economy. Making up about 97% of the entire economy, they serve as a source of employment
generation, innovation, competition, economic dynamism which ultimately lead to poverty
alleviation and national growth. Tax policy is one of the factors that constitute the SMEs’
economic environment. This research work tries to establish if any relationship exists between
the growth of SMEs and the tax policy environment in which they operate in Nigeria.
Questionnaires were distributed to SMEs in Zaria, North Central, Nigeria and non probability
judgmental sampling method was employed. The hypothesis was tested using Spearman’s Rank
Correlation. It was found out that from most SMEs surveyed, they were faced with the problem
of high tax rates, multiple taxation, complex tax regulations and lack of proper enlightenment or
education about tax related issues. Although there was a general perception that tax is an
important source of fund for development of the economy and provision of social services, the
study revealed a significant negative relationship between taxes and the business’ ability to
sustain itself and to expand. In order to obtain a vibrant and flourishing SME sector, the tax
policy needs to be appropriate such that it will neither be an encumbrance to the SMEs nor
discourage voluntary compliance. A suggested solution is by increasing tax incentives through
reducing tax rates and increasing tax authorities’ support services towards small and medium
enterprises
Keywords
H Social Sciences (General), HF5601 Accounting