MJAMR

TAXATION AND FINANCIAL PERFORMANCE OF SMALL-SCALE ENTERPRISES IN KANUNGU DISTRICT, UGANDA

JORAME NAYEBARE KAKONDERE


Abstract

The study examined the impact of taxation on the financial performance of small-scale enterprises (SSEs) in Kanungu District, Uganda. The research was anchored on the Allingham and Sandmo Theory (1972), which posits that taxpayers are rational actors who weigh the risks and benefits of tax compliance. The theory was applied to understand how factors such as the probability of detection, severity of penalties, complexity of tax procedures, and taxpayer awareness influence compliance behavior and, consequently, the financial outcomes of SSEs. The study investigated three key dimensions of taxation: taxation awareness and knowledge, tax rates, and tax administration criteria, and their effects on financial performance indicators such as profitability, liquidity, and revenue growth. A descriptive survey research design was employed, utilizing both quantitative and qualitative data collection methods. The target population consisted of 265 SSEs in Kanungu District, from which a sample of 160 respondents was drawn using stratified and simple random sampling techniques. Primary data were collected through structured questionnaires and interviews, while secondary data were sourced from relevant academic and institutional publications. Data analysis involved descriptive statistics, correlation analysis, and multiple linear regression, performed using SPSS, to determine relationships and predictive influences among the variables. The results revealed significant positive relationships between taxation and financial performance. Specifically, taxation awareness and knowledge had a strong positive effect (R = 0.766, p < 0.001), explaining 58.7% of the variance in financial performance. Tax rates showed a strong positive correlation (r = 0.774, p < 0.001), indicating that fair and predictable rates enhanced financial outcomes. Tax administration criteria were the strongest predictor (R = 0.792, p < 0.001), accounting for 62.8% of the variance, with efficient and transparent administration significantly boosting financial performance. Qualitative insights underscored that improved tax knowledge, reasonable tax rates, and streamlined administration reduced compliance costs, enhanced planning, and fostered business growth. The study concluded that taxation awareness, equitable tax rates, and efficient tax administration are critical determinants of the financial performance of SSEs in Kanungu District. Informed taxpayers are better equipped to comply, plan, and invest, while fair and stable tax rates create a conducive environment for sustainability. Effective administration reduces bureaucratic burdens and builds trust, further enhancing financial outcomes. Based on the findings, the study recommends enhanced taxpayer education programs to improve awareness and knowledge among SSE owners; the establishment of fair, predictable, and consultative tax rate policies to support business planning and growth; the streamlining and digitizing of tax administration processes to improve accessibility, transparency, and efficiency; and the implementation of sectorspecific interventions to address unique challenges faced by SSEs in agriculture, transport, manufacturing, and telecommunications.

Keywords

TAXATION AND FINANCIAL PERFORMANCE OF SMALL-SCALE ENTERPRISES IN KANUNGU DISTRICT UGANDA
Metropolitan Journal of Academic Multidisciplinary Research

Cite This Article

JORAME NAYEBARE KAKONDERE (2026). TAXATION AND FINANCIAL PERFORMANCE OF SMALL-SCALE ENTERPRISES IN KANUNGU DISTRICT, UGANDA. Metropolitan Journal of Academic Multidisciplinary Research, 5(3). https://journals.miu.ac.ug/pages/article.php?article_id=360

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