English

Twesige Daniel,Gasheja Faustin

doi:10.5897/jat2019.0339

Abstract

The study analyzes the effect of tax incentive on the growth of small and medium-sized enterprises (SMEs) in Rwanda taking SMEs in Nyarugenge as a case study. Qualitative and quantitative research approach was adopted. The population includes 49000 SMEs from agricultural, industrial, services and tourism sectors operating in Nyarugenge district. A sample of 136 SMEs was determined using Silovin and Yemen’s formula of sample size. Simple random and purposive sampling techniques were used to select the sample. The data set was analysed using descriptive statistics. A multiple regression analysis was used to explain the relation between variables. The results from the study revealed that 75.7% of the respondents agreed that they know the tax laws, 78.7% agreed that they know the tax incentives that are available to SMEs. The results further revealed that wear and tear, loss carried forward and value-added tax (VAT) refund as the most tax incentives available to Rwandan SMEs as evidenced by 100, 94.1 and 95.6%, respectively. The study indicated that there was a strong positive and significant relationship between tax incentives and the growth of small and medium enterprises in Rwanda as approved by coefficients of correlation equal to 88.8% of R-square. This meant that only 11.2% of the variation in the growth of SMEs was outside the tested variables. The study concluded that tax incentives are the key to the sustainable growth of SMEs. The government should design policies that specifically address issues related to the sustainable growth of SMEs. Key words: Tax, tax incentive, small and medium-sized enterprises (SMEs), growth.

Highlights

The theory behind using tax incentives to promote small and medium-sized enterprises (SMEs) is at its core from the finance theory of net present value (NPV) decision rule
This research work clearly confirms that tax incentives are germane to the growth, development and continued sustenance of small and medium enterprises
Most of the tax incentives that are available in the tax law are not enjoyed by SMEs

Summary

Introduction

The theory behind using tax incentives to promote small and medium-sized enterprises (SMEs) is at its core from the finance theory of net present value (NPV) decision rule. The rule implies that firms continue to spend on capital assets and R&D as long as the present value from an additional unit of capital or R&D is equal to or exceeds the cost of the additional unit. It is assumed that businesses would consider tax implications in their calculation of the value of their expenditure decisions since any reduction in the cost of capital caused by tax policy leads to an equal increase in expenditure (Hansson and Brokelind, 2014). SMEs play a vital role in the economic development of a country. Taxation more than 50% of the gross domestic product (GDP) in many developing countries. SMEs are the largest employers where by more than 90% of the working force is employed by SMEs

Methods

Results

Conclusion