An Assessment of the Relationship Between Tax Compliance and Financial Performance of SMEs in Ilorin South LGA
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Background of the Study
Small and medium-sized enterprises (SMEs) in Ilorin South LGA play a crucial role in the local economy, contributing to job creation and economic growth. Tax compliance is an essential aspect of business operations, as it not only ensures the business is legally compliant but also influences its financial health. Effective tax compliance can impact the financial performance of SMEs by enhancing business reputation, avoiding penalties, and creating access to government incentives. This study aims to assess the relationship between tax compliance and the financial performance of SMEs in Ilorin South LGA.
Statement of the Problem
Many SMEs in Ilorin South LGA struggle with tax compliance due to inadequate knowledge of tax regulations, lack of proper accounting systems, and fear of high tax burdens. This non-compliance may lead to penalties, loss of government support, and reduced financial performance. This study seeks to explore how tax compliance affects the financial performance of SMEs in the region.
Aim and Objectives of the Study
The primary aim of the study is to assess the relationship between tax compliance and financial performance of SMEs in Ilorin South LGA. The specific objectives include:
- To determine the level of tax compliance among SMEs in Ilorin South LGA.
- To assess the impact of tax compliance on the financial performance of SMEs in the region.
- To explore the challenges SMEs face in achieving tax compliance.
Research Questions
- What is the level of tax compliance among SMEs in Ilorin South LGA?
- How does tax compliance affect the financial performance of SMEs?
- What challenges do SMEs in Ilorin South LGA face in achieving tax compliance?
Research Hypotheses
- There is a significant positive relationship between tax compliance and the financial performance of SMEs in Ilorin South LGA.
- SMEs that comply with tax regulations experience better financial performance than those that do not.
- Lack of knowledge and inadequate accounting systems are major barriers to tax compliance among SMEs in Ilorin South LGA.
Significance of the Study
The study will provide valuable insights for SMEs in Ilorin South LGA on how tax compliance can enhance their financial performance. It will also help policymakers and tax authorities develop strategies to improve tax compliance among SMEs in the region.
Scope and Limitation of the Study
The study will focus on SMEs within Ilorin South LGA. Limitations may include challenges in obtaining accurate financial data from SMEs and potential biases in self-reported tax compliance behavior.
Definition of Terms
- Tax Compliance: The degree to which a business adheres to tax regulations, including timely submission of tax returns and payment of taxes owed.
- Financial Performance: The financial health of a business, often measured through profitability, return on assets, and other financial indicators.
SMEs (Small and Medium-sized Enterprises): Businesses that are characterized by a relatively small number of employees and a lower level of capital investment compared to large enterprises.
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