Abstract:
The study assessed the effects of taxation on financing decisions of SMEs in
Kumasi Metropolis, Ghana. Kumasi is mostly dominated by SMEs in various
economic sectors of the Ghanaian economy. The study targeted registered
SMEs, with a sampling frame of 153 businesses. A sample size of 115 was
determined and were selected (stratified sampling technique). A 100 percent
return rate was recorded. Descriptive research survey design was adopted and
through structured questionnaire, primary data were gathered for data analysis
purposes. The study employed the quantitative research approach. Statistical
Package for Social Science (SPSS Version 22.0) was used to analyze the
primary data. An internal consistency reliability of 0.763 was obtained for the
instrument. Inferential statistics (Standard multiple regression, Pearson
product-moment correlation) and descriptive statistics (Mean, standard
deviation, frequency, percentage) were employed to obtain the needed insights
from the processed primary data. It was discovered that majority of the SMEs
duly pay taxes to Ghana Revenue Authority and are registered tax payers.
However, 41.7% of SMEs delay in tax payment. SMEs do enjoy tax
incentives. Again it was discovered that taxation negatively affect financing
decisions in the areas of number of workers to employ, working/operational
capital, investment funding and profitability. The results of the study showed
that corporate taxation causes a statistically significant positive variance in
SMEs’ growth (R2=0.368; p=000, p<0.05) and there was a very strong positive
correlation between corporate tax and SMEs’ growth (R=0.67). SMEs are
however challenged especially regarding higher tax rates, multiple taxes and
corruptions among tax officials.
