THE EFFECTS OF TAXATION ON SMALL AND MEDIUM SIZE ENTERPRISE IN BAMENDA, CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Small and medium-sized businesses (SMEs) are seen as key players in the development of employment and economic growth in the majority of the world's economies. They generate value and an excess of products and services through their investments and consumption, which helps to fund public services and build a thriving local economy. In Sub-Saharan Africa (SSA), almost 90% of all businesses are in the SMEs sector. Approximately 70–80% of SMEs are extremely small businesses. However, Africans rely mostly on them for employment and revenue, with subsistence farming coming in second. This is evident in the economy of countries like Nigeria, Ghana and Kenya, not forgetting Cameroon with the recent exploitation of SMEs especially in Bamenda. This has led to the GDP of these countries. Furthermore, according to Laurent Serge Etoundi Ngoa, Minister of Small and Medium-Sized Enterprises, Social Economy, and Craft, in an interview, SMEs in Cameroon formally account for 95% of the nation's economy. Aware of the significance of SMEs in any development plan, Cameroon has been extending its support for them over the past few years. This includes the establishment of the SME Bank in Yaoundé on July 20, 2015, which was designed to lessen the difficulties faced by SMEs in Cameroon when attempting to secure financing, and the inauguration of the Upgrading Office, which was facilitated by the European Union and aimed to increase the competitiveness of Cameroonians.In addition, Cameroon now has an Agency for the Promotion of SMEs, which aims to transition SMEs from an informal to a formal economy and Tax Management Centers put in place by the Finance Ministry, where SMEs receive tax advice to better play their part in the development of the Cameroonian economy. On the other hand, taxation is when a government makes its citizens or residents pay money. People giving money to the government has been happening for a very long time. Taxation is like a way for the government to get money to pay for things, or it's a method for the government to get money by charging the people. Some might think that taxes on income and wealth are new, but there's proof that even in very old communities, some form of taxes on income existed. Therefore, a survey will be conducted in order to examine the effects of taxation on small and medium size enterprise in Bamenda, Cameroon

1.2 Statement of the Problem

SMEs faced with taxes burden like high taxes, multiple taxes, complex tax regulations and lack of education about tax are finding it difficult to grow and expand their business. In addition, SMEs in Cameroon face numerous obstacles, including inadequate funding, insufficient technical and managerial expertise, inadequate infrastructure development, governmental regulations that impede their operations, and so forth. Studies have indicated that the problem of tax expenditures that has eaten away the profits that SMEs make, which are crucial to their survival and expansion. Similarly, some SMEs' debt records have increased because of their size and nature, thereby having significant difficulties complying with tax laws. Furthermore, it has become evident that there are high interest rate prevailing in Cameroon on borrowing from financial institutions and banks. However, this has had a direct impact on the Small Enterprises because the contraction of credit availability and loss of borrowing opportunities perpetuates negative effect, Ahimisibwe (2010). It has also led to low profitability and decrease in internal generated finance for re-investment. Hence, it is in the light of these that the study seeks an examination on the effects of taxation on small and medium size enterprise in Bamenda, Cameroon.

1.3 Objectives of the Study

The main purpose of this study is to examine the effects of taxation on small and medium size enterprise in Bamenda, Cameroon. Specifically, the study will;

1.Identify taxation challenges faced by SMEs in Bamenda, Cameroon

2.Investigate the effects of taxation on small and medium-sized enterprises (SMEs) in Bamenda, Cameroon

3.Examine how taxation influences the financial health and sustainability of SMEs in Bamenda, Cameroon

1.4 Research Questions

The following questions have been prepared for the study:

1. What are the taxation challenges faced by SMEs in Bamenda, Cameroon?

2. What are the effects of taxation on small and medium-sized enterprises (SMEs) in Bamenda, Cameroon?

3. How does taxation influences the financial health and sustainability of SMEs in Bamenda, Cameroon?

1.5 Significant of the Study

This study will help customers in adopting new financial tools, making educated decisions, and navigating the ever changing market. Further more, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to the effects of taxation on small and medium size enterprise in Bamenda, Cameroon.

1.6 Scope of the study

The scope of this study is boarded on the effects of taxation on small and medium size enterprise in Bamenda, Cameroon. Theoretically, this study will identify taxation challenges faced by SMEs in Bamenda, Cameroon, investigate the effects of taxation on small and medium-sized enterprises (SMEs) and examine how taxation influences the financial health and sustainability of SMEs in Bamenda, Cameroon

Geographically, the study will be delimited to SMEs owners in Bamenda, Cameroon.

1.7 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed.

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

1.8 Definition of Terms

Taxation: the system of imposing charges or levies on individuals, businesses, or other entities by a government.

SMEs: short form for Small and Medium-sized Enterprises. These enterprises are businesses that maintain revenues, assets, or a number of employees below a certain threshold.