What question did this study set out to answer?

This research aims to explore how tax rates and complexity affect the growth and profitability of SMEs in Kasoa.

July 26, 20260 citationsOpen Access

When Taxes Accumulate: Multiple Tax Obligations, SME Growth and Profitability in Kasoa, Ghana

NANicholas Addo-Darko RCRegulatory Complexity SKSME Performance in Kasoa

Key Points

This research aims to explore how tax rates and complexity affect the growth and profitability of SMEs in Kasoa.
Quantitative descriptive survey of 50 SMEs in Kasoa, selected purposively from a total of 102 businesses.
Data collected through a pilot-tested questionnaire and analyzed using SPSS version 27.
Utilized descriptive statistics, reliability analysis, Pearson correlations, and multiple regressions in the analyses.
Tax rates and complexity showed a weak negative relationship with SME growth (r = -.253, p = .016).
Tax rates and complexity exhibited a moderately strong negative relationship with SME profitability (r = -.499, p = .001).
Regression results revealed a non-significant relationship for growth (β = .063, p = .66) but a significant positive relationship for profitability (β = .382, p = .007).

Abstract

Small and medium-sized enterprises (SMEs) are significant contributors to employment, commerce, and household finances in Ghana, making them highly dependent on the tax regime for their survival. This paper focuses on the relationship between tax-rates-and-complexity and the growth and profitability of SMEs to inform policy adjustments in the municipality. The first objective of the project that inspired this journal article was to establish the effect of taxation on SMEs. The present study is a quantitative descriptive survey of 50 small- and medium-sized enterprises sampled from a target population of 102 businesses in Kasoa. The sample was selected purposively and was used to complete a questionnaire that had been pilot tested. The data were analysed using descriptive statistics, reliability analysis, Pearson correlations, and multiple regressions in SPSS version 27. The results showed that the tax-rates-and-complexity construct had a Cronbach's alpha of 0.688. The bivariate results showed that it had a weak negative relationship with SME growth (r = -.253, p = .016) and a moderately strong negative relationship with SME profitability (r = -.499, p = .001). However, in the regression model, the adjusted coefficient was not significant for growth (β = .063, p = .66) but was positive and significant for profitability (β = .382, p = .007). This contradicts the a-priori expectation that growth would be significantly related to taxes and implies that the two variables have some variance that should be partitioned. The paper discusses this issue and concludes that the most evident application of the findings is in developing graduated tax decrees, simplified procedures, stable guidelines, focused training, and differentiated enforcement for SMEs. It recommends wider studies with larger populations that use audited figures and specify variance partitioning processes such as diagnostics tests for multicollinearity and endogeneity.

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