ABSTRACT

Multiple taxation poses a significant challenge to the growth and sustainability of small and medium-sized enterprises (SMEs) in the Buea Municipality of Cameroon. This study explores the impact of multiple taxation on SME growth, focusing on the unique context of Buea Municipality. Through a mixed-methods approach combining quantitative analysis of taxation data and qualitative interviews with SME owners and tax authorities, the research investigates the extent to which multiple taxation hampers SME development and the coping mechanisms employed by SMEs to navigate the tax burden. The findings reveal the detrimental effects of multiple taxation on SME profitability, investment, and expansion opportunities, hindering their ability to contribute effectively to local economic development. Moreover, the study identifies key factors contributing to the prevalence of multiple taxation, including overlapping tax jurisdictions, inadequate tax administration, and lack of coordination among regulatory agencies. By shedding light on the challenges posed by multiple taxation and its implications for SME growth in Buea Municipality, this research provides valuable insights for policymakers, tax authorities, and SME stakeholders aiming to create a more conducive business environment and promote sustainable SME development.

Keywords: Multiple taxation, Small and medium-sized enterprises (SMEs), Buea Municipality, Tax burden, Economic growth.

Chapter One: Introduction

1.1 Background of the Study

In recent times the world economy has developed tremendously and this has been linked with the activities carried out by small and mediums size scale enterprises (SME’s). A study carried out by the ministry of small and medium size scale enterprises in Cameroon makes up to 97% of productive units of the economy (Ariyo 2005).

The social economic advantages of small and medium size scale enterprises cannot be over rated, they are the most important enterprises in the company due to the fact that when all the individual effects aggregated, surpass that of large companies. Panitchipakdi (2006) sees SME’s as a source of employments, competition dynamism, and innovation which stimulates entrepreneur spirit and diffusion of skills. SME’s also contributes to better income distribution, and has been an avenue for job creation in Cameroon and empowerment of Cameroon citizens providing about 55% of all jobs is Cameroon. Being highly innovative, they lead to the utilization of our natural resources which in turn translate to increase in the country wealth through their high productivity, they are considered as a very important avenue for achieving poverty alleviation and reducing unemployment. Small and medium size scale enterprises have undoubtedly improved the standard of living for so many people especially those in rural areas (Ariyo 2005).

According to statistics,80% of SME’s die before their 5^th anniversaries because of factors which include; tax related issues, ranging from multiple taxation to enormous tax burdens etc. In many government policies, small and medium size scale enterprises are usually viewed and treated in the same light as large corporations. However, in levying taxes for small and medium size scale enterprises, issues that need to be consider are how these tax polies can be designed to boost the performances of the most effective ways to administer them.

Taxes generally provide basic government revenues, which help in the carrying out of the state’s functions. This is why [Ojo 1996] defined tax as a means by which government appropriates part of private sector’s income and expenditure as its revenue for the purpose of meeting recurrent expenditure and creating public capital formation towards the development and growth of goods and services of the economy.

A good tax possesses the following qualities; fairness, convenience, simplicity, and a minimum cost of collection and minimum distortions. Musgrave 1980 noted that taxes that taxes should be chosen at a minimized interference with economic decision in other efficient markets. Imposition of excess burden should be minimized.

Taxes therefore play a major role in the development of the economy. This is the role of providing finance for the government’s expenditure. However Holton 2007 posited that taxation can contribute to development and to welfare through three sources; it must be able to generate sufficient fund for financing public services and social transfer at as high level of quality, it should offer incentives for more employment and for an efficient lasting use of natural resources, finally It should be able to reallocate income. But in the case of SME’s tax must be done in such a way that put their income into consideration.

Multiple taxation occurs when the same income is subjected to more than one tax treatment. That is, different taxes are being imposed on a particular income, the various taxes imposed on income of SME’s on Cameroon are; global tax and business license tax (patent).

Oludele 2012 argues that high tax rate and tax complicity discourages the growth of SME’s and this has been an economic effect on the growth of the economy.

Taxes increases production cost of goods and services and as a result the final consumer suffers from high prices of these commodities. Meanwhile, the revenue collected from taxes represents the major founding source for governmental expenditures (Baurer 2005). Most business organization see paying of taxes as a burden and detrimental to their growth and leading to tax avoidance and tax invasions.

Tax evasion in general refers to illegal practices to escape from taxation. To this end, taxable income, profits liable totax or other taxable activities are concealed, the amount or source of income are misrepresented or tax reducing factors such as deductions, exemptions or credits are deliberately overstated (Alm and Vazquez 2001 and Chiumya,2006).

Tax avoidance, in contrast, takes place within the legal context of the tax system that individuals or firms take advantage of the tax code and exploit ‘loopholes.

Moreover, despite the contribution that tax can make towards the gross domestic product (GDP), the growth of business organization has to be taken into consideration. This situation rises a serious concern about the issues of aligning the tax planning system to the specific requirements of a particular country’s growth need, as it has to balance both in short- and long-term impact of the policy. This also triggers needs for an in-depth study of the different issues, preventing the development and implementation of effective tax policy and systems particularly in the context of SME’s (Njemo C 2014)

Taxes are broadly divided into direct and indirect taxes (Lawal 1982). Examples of direct taxes include, income tax, corporation tax, capital gain tax, inheritance tax. While indirect taxes are mostly taxes imposed on goods and services,examples include Value added tax (VAT) excise duties, import duties, purchase tax, and export duties. (AanuOjekal 2012)

1.2 Statement of the problem:

Although there has been a general perception that tax is an important source is funds for development of the economy and provision of social services, the problems faced are in the areas of negative relationship between taxes and the business ability to sustain itself (performance) and to expand (growth) and also how to find the optimal balance between a tax regime that is business and investment friendly, while at the same time leveraging enough revenue for public services delivery which in turn makes economies more attractive to investors. As regards to this, Cameroon’s dream of becoming and emergence country in 2035 is very skeptical since SME’s are faced with the problem of high tax rates, multiple taxation, complex tax regulations and lack of proper enlightenment or education about tax related issues. Without minding other challenges, the SME’s face in Cameroon which include, inadequate capital, poor technical and managerial skills, environmental effects, and government regulations which affects the operation of SME’s, especially issues of multiple taxation which is a worm eating deeply into the revenue generated by these SME’s for their growth and survival. These have led to increase in records of death of small and medium size scale enterprises (SME’s).

Research Questions:

1. What is the extent of multiple taxation faced by small and medium-sized enterprises (SMEs) in the Buea Municipality?
2. How does multiple taxation impact the financial performance and growth prospects of SMEs in Buea?
3. What are the underlying factors contributing to the prevalence of multiple taxation in Buea Municipality?

Objectives:

1. To assess the scope and magnitude of multiple taxation imposed on SMEs operating in the Buea Municipality.
2. To examine the effects of multiple taxation on the financial performance, investment decisions, and growth trajectories of SMEs in Buea.
3. To identify the institutional, regulatory, and administrative factors influencing the occurrence and persistence of multiple taxation in Buea Municipality.

Hypotheses:

1. H₀: There is no significant relationship between the number of taxes levied on SMEs and their financial performance in the Buea Municipality. H₁: SMEs facing higher levels of multiple taxation experience lower profitability and growth rates compared to those facing fewer taxes.

2. H₀: Multiple taxation does not hinder SMEs’ investment decisions and expansion plans in the Buea Municipality. H₁: SMEs burdened by multiple taxation are less likely to invest in capital expenditures, research and development, and market expansion initiatives.

3. H₀: Institutional factors such as regulatory complexity and administrative inefficiencies have no significant influence on the prevalence of multiple taxation in Buea Municipality. H₁: Inadequate tax administration, overlapping tax jurisdictions, and lack of coordination among regulatory agencies contribute to the proliferation of multiple taxation faced by SMEs in Buea.

Significance of the study:

This research study shall seek to enable the researchers of similar material the chance to know more about taxes and how taxes are being accessed and the various taxes imposed on SME’s. Hence easing the understanding of the responsiveness of businesses regarding multiple taxation in Cameroon and the limbe municipality.

This research study aims at providing information to tax authorities on the relationship between taxation and growth of business organization, the findings of the research will also benefit the regulatory authorities and policy makers in understanding the specific issues in the modification of the tax laws, implementation of rules and regulation.

This research will aid tax payers to know the importance of taxes to the economic development about taxes, when and how to pay them, and also calculate their taxes from their income earned.

This research will assist the government bring out possible solutions on the implementation of multiple taxation on business and which will lead to the growth of small and medium size scale enterprises.

This will serve as literature review to other researcher to increase their body of knowledge.