Effects of Tax Evasion on the Performance of Small to Medium Enterprises (Smes): A Case of Consumer Goods Smes in Harare.

Abstract

The general objective of the study was to examine the effects of tax evasion on the performance of small to medium enterprises (SMEs). The study also sought to establish the factors that promotes tax evasion amongst SMEs. The study also sought to identify challenges that SMEs face in order to comply with tax as well as the measures needed in order to control tax evasion by SMEs. To achieve these objectives, a positivism research approach was used pursuing a quantitative research design. Target population consisted of SMEs from Harare. Purposive sampling technique was used and a total of 60 respondents were selected. The data was coded into a minimal number of categories so that the comments could be categorized. The data was presented in a number of different formats, including tabular, graphical, and narrative. Statistical tools which are descriptive like pie charts, bar graphs, mean and mode were used to analyse the data. The summary of the findings was done in line with research objectives as they answered the research questions. From the findings, the study established that various forms of tax evasion were present amongst SMEs in Zimbabwe albeit with varying degrees of application. The research findings also indicated that SMEs face other tax related hurdles or constraints in so far as tax compliance is concerned, with high tax rates, lack of will, restrictive tax laws, and corruption amongst the top factors that fuel tax evasion. The research findings also indicated that tax compliance not only positively impact SMEs but also negatively affects the performance of the company in general. The notable positive effects of tax compliance were enhanced business performance through improved financial preparation, access to business loans, government tenders and contracts as well as managerial benefits, However, tax compliance for small organizations such as SMEs was seen to be burdensome in that it increases operational costs caused by tax compliance cost and there potential opportunity costs incurred. In a bid to improve tax compliance amongst SMEs, the research findings indicated that government and revenue officials ought to play an active role by educating SMEs on why and how part of paying taxes, hold tax awareness campaigns, lowering tax rates and addressing tax compliance costs and administrative costs as well as punishing and prosecuting tax evaders.