ILLEGAL TAXATION VERSUS TAX HOLIDAY: IMPLICATIONS ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN AWKA, ANAMBRA STATE

Abstract

The study examined the effect of illegal taxation and tax holiday on the performance of Small
and Medium Enterprises in Awka South Local government area of Anambra State, Nigeria.
Specifically, the study ascertained whether concise implementation of tax holiday will
significantly affect the performance of Small and Medium Enterprises. It also examined the
measure of effect that illegal tax practices by Touts have on the performance of Small and
Medium Enterprises. The descriptive survey research design was adopted while a total of
one hundred and nineteen (119) respondents were sampled from a population of one
hundred and sixty eight (168) Senior staff and Personnel of Finance Departments of eleven
(11) selected Small and Medium Enterprises in Awka South Local Government Area of
Anambra State, Nigeria using the stratified sampling technique. The primary data for this
study were collated through structured questionnaire and consequently analysed using
simple linear regression analysis statistical tool. Results obtained showed that concise
implementation of tax holiday will have significant and positive effect on the performance
of SMEs in Awka South Local Government Area of Anambra state (p-value = 0.000). It
however observed that the measure of effect of illegal taxes by Touts on the performance of
Small and Medium Enterprises in Awka south local government area of Anambra state was
not only negative but the extent of such negative effect was statistically significant (p-value
= 0.031). The study therefore concluded that tax incentives can encourage SMEs to reinvest
its retained earnings if not forcefully taken away from it by way of illegal taxation towards
achieving commendable expansion of such small businesses that lead to more job creation,
and sustainable contribution to the local economy. Therefore, addressing corruption in tax
administration will improve transparency and accountability, and promote ethical business
practices that supports sustainability and growth of SMEs. As a result, it was recommended
that government should consider providing more tax holidays to SMEs to encourage their
growth and development. It was also recommended that government should take strict
measures to curb the illegal activities of touts and protect SMEs from such illegal taxes.