Analysis of the compliance of Uganda’s tax policy in the small and medium enterprises: case study of Kampala City Center

Abstract

The major objective of the study was to analyze the compliance of Uganda’s tax policy among small and medium enterprises basing on the following objectives; to analyze the nature and principals of tax in small and medium enterprises in Uganda, to establish the extent to which tax payers in SMES comply with Uganda’s tax policy, to assess the Challenges of compliance with Uganda’s tax policy by SME’s, and recommend possible ways of improving compliance by SME’s towards Uganda’s tax policy. A case study research design was used and it was based on Kampala city. The research approach was quantitative in nature because. Sample size was selected using a convenient sampling method. A sample of 45 was selected from the study population. Questionnaires were given to respondents operating in the city center having different kinds of business. These included street vendors, shop owners, salon owners, market vendors, boutiques. Frequency tables and graphs were drawn using Statistical Packages for Social Scientist (SPSS), and analysis made there on. Findings revealed that most small and medium enterprises in Uganda do not pay the appropriate taxes levied to them, some do not know in advance how much tax they have to pay, others do not know in advance at what time they have to pay the tax, they also do not know in advance in what form the tax is to be paid to the government. Besides that most small and medium enterprises do not file annual income tax returns in addition to returns for consumption, they do not have proper record keeping system, do not have cash flow management skills, do not have tax knowledge, do not fulfill all tax obligations as specified by the law freely and completely, understate their income, overstate their deductions, and do not always pay assessed taxes by due date. More so, higher tax rates lead to less compliance among Small and medium enterprises, Higher income levels lead to less compliance among Small and medium enterprises, Taxpayers with positive attitude towards tax evasion will tend to be less complaint, Taxpayers with positive attitude to the tax authorities or trusting tax authorities would consequently be more compliant.