1.1   Background to the study

Micro enterprises are usually small individually-owned or family managed businesses offering basic goods and services. Microenterprises tend to lack organizational and management structures, and are generally characterized by uncertainty, innovation and evolution.  Udechukwu (2003), notes that microenterprises are mostly sole proprietorships and partnerships, and only a few are registered as limited liability companies. Micro enterprises generally have a simple management structure, and in many cases the owner is the manager. With few employees who in most cases lack the appropriate skills and competencies. Given the simple management structure and extensive dependence on the owner, the lifespan of the enterprise is often dependent on the longevity of the owner and his/her interest in continuing the business.

For MSMEs to achieve their goals the government has to provide the necessary infrastructure to the sector. One of the ways through which the government generates income is through taxes paid by MSMEs

In recognition of the depth and breadth of the consequences of microenterprises in alleviating poverty and lack of job employment, there has been a deep-self interest in recent years for the development of microenterprises in less developed countries. The microenterprise is seen as a key to Cameroon’s growth and alleviation of poverty and unemployment in the country. Therefore, the promotion of such enterprises in emerging economies like Cameroon is of paramount importance since it brings about an excellent distribution of income and wealth, economic self-dependence, entrepreneurial development and employment and a host of other positive, uplifting economic factors (Aremu, 2004). Moreover, in a country like Cameroon with an adverse Balance of Payment situation, the growing contribution of the micro industries sector in Cameroon’s export portfolio goes a long way in generating foreign exchange and smoothening out the adverse Balance of payment situation.

Tax is an obligatory and non-refundable contribution executed by the government for public purposes and payment cannot be avoided without attracting a punishment and in return of which no gain/quid pro-quo is promised by the government to the tax payer. Payment is not followed by concurrent benefit in return (Balunywa, 1988).

From an economic point of view, taxes increase the production cost of goods and services which would eventually lead to a higher price of goods/services to the final consumers. Also, the revenue collected from taxes represents the main funding source for governmental expenditures (Baurer, 2005).

Taxes are broadly divided into two namely; direct and indirect taxes Lawal (1982). Examples of direct taxes include; income tax, corporation tax, capital gains tax, and inheritance tax. While indirect taxes are usually taxes on commodities or services, examples of indirect taxes include; value added tax, excise duties, import duties, purchase tax, and export duties (Aanu Ojeka1 2012).

Tax revenue contributes to development and to welfare through three sources; financing public services and social transfers at a high level of quality, reallocating income and offering incentives for more employment and the efficient use of natural resources, (Holban 2007). This notwithstanding the profit generated by MSMEs is for the expansion of their businesses, so their income and need for survival ought to be taken to consideration when designing a tax policy.   TO this effect, the tax policy should be one that would encourage MSMEs to move to the formal sector and limit tax evasion.

Tax systems play an essential role in promoting growth, investment and innovation and enabling international trade and mobility. For Micro Scale enterprises’ key considerations are to minimize administrative loads while guaranteeing compliance, including making an allowance for the drivers and impacts of operating in the informal economy (ITD, 2007). Kolstad et al., (2006) showed that taxes are perceived to be a key problem for both young and old firms. Therefore, taxation has shown a way towards impacting micro enterprises. Despite the contribution that taxation can make concerning the Gross Domestic Product (GDP) generally, much attention is also required to the side effects of tax concerning the growth of micro enterprises. This is because Micro enterprises play an important role in driving economic development in both emerging and advanced countries. As a group, micro enterprises do not only generate more new jobs than big firms, but also introduce innovative ideas, products, and business approaches.

If the tax structure is not sufficiently designed to the specific environmental conditions, it may create a more significant burden to the tax-paying organizations and eventually affecting the final consumer due to the shifter effect ability of tax. Microenterprises in developing nations often face problems when dealing with tax matters. It would be rare, certainly not to hear criticisms about the complexity and/ or ambiguity of the tax laws, high tax rates, and the absence of an integrated fiscal strategy that takes social taxes, and local taxes and dues into account when determining the total tax burden placed on the business community (Baurer, 2005). This implies that as a policymaker and regulator, the Government must consider the factors that could affect the competitiveness of the enterprises. Assessing the impact of tax systems on Micro enterprises is not merely a matter of looking at tax rates.

Oludele 2012 argue that high tax rates and tax complicity discourage the growth of MSMEs and this has an economic effect on the growth of the economy. Taxes increase production cost of goods and services and as a result the final consumers suffer from high prices of these commodities. Meanwhile, the revenue collected from taxes represents the major funding source for governmental expenditures (Baurer, 2005). If the tax structure is not adequately designed to the specific environmental conditions, it may create a greater burden to the taxpaying organizations and eventually affect the final consumer due to shifting tax ability.

It has also been perceived that less care has been given to the side effects of tax concerning the growth and development of microenterprises despite their contribution in the overall GDP of the country. The situation rises a serious worry about the issue of aligning the tax-planning system to the specific requirements of a specific country’s growing need, as it has attain equilibrium both short-term and long-term impact of the policy. This also causes the need for an in-depth study of the diverse issues, foiling the development and application of effective tax policy and system, mainly in the context of micro enterprises. Consequently, the present study anticipates to do fill this knowledge gap by addressing the key objective of tax rate, tax policy or system impact assessment on the progress of micro-enterprises in South West (Buea) region and Douala I (Littoral) regions of Cameroon.

1.2   Statement of the Problem

There is a general perception that taxes are an important source of funding for government operations, projects and programs, development of the economy and the provision of basic and essential socio-economic services. The problematic here is in the area of negative relationship between taxes and the businesses’ ability to sustain and to expand. Micro enterprises are faced with the problem of high tax rates, complex tax regulations and lack of proper education about tax and related issues. In Cameroon, tax rate ranges between 10 and 35%, depending on yearly income threshold. Those earning more than CFA 5 million per year have to pay a 35% rate income tax. This 35% tax rate is high for Micro-enterprises earning an annual revenue of 15million CFA. Tax policies has to do with registration processes, time and cost. Business license and the agreement for the operation of Micro-businesses takes 15 steps with an average cost of 1094.2% of the GNI per capita (World Bank, 2008). It takes about 654 hours to comply and make 46 tax payments in Cameroon. These factors have led to increased record of close-up of Micro Small and Medium Size Enterprise (MSMEs). With this record, Cameroon occupies the bottom 8th position in Africa. Payments consist of 13 of profit, 12 of labor and 19 others (PricewaterhouseCoopers2013). Literature reviews on the Perceptions of tax rates, tax policies and the different types of taxes for Micro-enterprises are yet to be known coupled to the fact that limited literature exist to prove such in Buea, South West and Douala I, littoral regions of Cameroon, such has motivated the enthusiasm for the research.

1.3   Objectives of the study

• Main objective

• The main objective of this study is to examine the influence of taxation on the growth Microenterprises in Buea, South West and Douala I, littoral

1.3.2              Specific Objectives

1. Examine the influence of tax rates on the growth of microenterprises in Buea, South West and Douala I, Littoral
2. To investigate the influence of tax policies on the growth of micro businesses in Buea, South West and Douala I,ittoral
3. To investigate the influence of the different types of taxes and how they can be used to guarantee fair competition amongst microenterprises in Buea, South West and Douala I, Littoral

1.4   Research Questions

• Main Research Question

What is the influence of taxation on the growth of Microenterprises in Cameroon: case study: South West region (Buea) and Douala I, (Littoral) Region.

1.4.2          Specific Research Questions

1. What is the influence of tax rates on the growth of microenterprises in Buea, South West and Douala I, Littoral Regions?
2. What is the influence of tax policies on the growth of micro businesses in Buea, South West and Douala I,ittoral Regions?
3. What are the influence of the different types of taxes and how can they be used to guarantee fair competition amongst microenterprises in Buea, South West and Douala I, Littoral Regions?

1.5   Research Hypothesis

• Main Hypothesis

H°: Taxation has no significant effect on the growth of Microenterprises in Buea, South West and Douala I, Littoral Regions.

1.5.2              Specific Hypothesis

H¹: Tax rates has no significant effect on the growth of Microenterprises in Buea, South West and Douala I, Littoral Regions.

H²: Tax policies have no significant effect on the growth of Microenterprises in Buea, South West and Douala I, Littoral Regions.

H³: Types of taxes has no significant effect on the growth of Microenterprises in Buea, South West and Douala I, Littoral Regions.