Tax Compliance in Small and Medium Enterprises (SMEs) in Uganda: A case study of Kikuubo Traders in Kampala Central Business District

Abstract

Tax is an important stream of revenue for government’s development projects. It is the only sure way how stable revenue for national development can be amassed by a country like Uganda However, tax compliance especially among SMEs which constitute the biggest proportion of business enterprises has been an issue of concern, mostly in developing countries. Small businesses are viewed as more likely to evade taxes since the owner and beneficiary of tax evasion, is more likely to also be responsible for keeping the books and filing the tax returns. The purpose of the study was to assess the compliance of SMEs to taxes in Uganda. Specifically, the study selected a few SMEs in Kikuubo Trading Zone. The objectives of the study were: to assess the levels of tax compliance among SMEs, the challenges faced by SMEs in complying with taxes and the strategies for improving tax compliance among SMEs in Uganda. The study sample size was 332 respondents comprising of 324 SMEs and 8 URA staff. Convenience sampling and purposive sampling were adopted in the selection of the respondents. Data were collected using questionnaires and interview guides. Study findings revealed that most SMEs are not complaint regarding paying of taxes. More than 60% of the selected SMEs were not fully committed to paying taxes. The challenges faced included high cost of involving consultants, poor record keeping, bad attitude towards the way how tax payers’ money is used by government and an unfair taxation system among others. However, the respondents had belief that tax compliance can be achieved if tax payer sensitization and education is looked into and the taxation system revised to make it fair to SMEs among others. The study recommended need for continuous taxpayer sensitization, encouraging SMEs to keep records and opening up a service centre of URA in Kikuubo among others.