Taxation Practices and Financial Performance of SMEs in Busia County, Kenya

SMEs form the economic bedrock of economy globally since they have employed many people and they significantly play a huge role in the global employment. However, in Busia County, Kenya SMEs face significant challenges due to the high taxation imposed by the Kenyan government. These taxes have raised concerns about their impact on the financial performance of SMEs in the region. This study therefore sought to investigate the effect of taxation practices on financial performance of small and medium-sized enterprises in Busia County, Kenya. The following specific objectives guided the study, to; determine the effect of business tax rates on financial performance of SMEs; establish the effect of tax compliance costs on financial performance SMEs; evaluate the effect of tax incentives and exemptions on financial performance and examine the effect of multiple tax on financial performance of Small and Medium-sized Enterprises in Busia County. The study was underpinned on resource-based theory, institutional theory and taxation theory where RBV was the anchoring theory.  The study used descriptive research design. The study surveyed 1,556 licensed SMEs who are operating in Busia County Government. We used stratified random sampling among the active registered SMEs to obtain a sample size of 103 SMEs. The participants in this study were drawn using stratified random sampling. The researchers collected primary data using structured questionnaires. The study constructs (variables) were assessed using the reliability test tool of Cronbach alpha. The resulting alpha values concluded that the constructs were reliable as they were above the threshold of 0.7. Below is the paraphrase of the given sentence. The data that was collected was analyzed using descriptive and inferential statistics, that was presented in tables and figures. The study rejected the null hypotheses suggesting that tax rates, tax compliance costs, tax incentives and multiple taxation each significantly influence SME financial performance in Busia County. These findings would offer valuable implications for policymakers, including the need to streamline tax administration, provide meaningful incentives, and review the cumulative tax burden facing SMEs to enhance their sustainability and contribution to the local economy.