The Impact of Taxation on the Profitability of Small-Scale Enterprises: A Case Study of Local Traders in Katsina State
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Background of the Study
Taxation plays a crucial role in revenue generation for governments, facilitating infrastructural development and public services. However, for small-scale enterprises, taxation can significantly impact profitability and growth. In Nigeria, the complex tax system, including income tax, value-added tax (VAT), and other levies, often imposes a substantial burden on small businesses (Ibrahim & Sani, 2024).
Local traders in Katsina State face unique challenges due to fluctuating market conditions, limited capital, and compliance with tax regulations. While taxation contributes to state revenue, excessive or poorly implemented taxes can reduce the competitiveness and profitability of small-scale enterprises (Bello & Musa, 2023). This study examines the balance between taxation and profitability for these traders and explores strategies to optimize tax policies to support small business sustainability.
Statement of the Problem
Small-scale enterprises are essential to local economies, providing employment and supporting community development. However, high tax rates, compliance costs, and unclear regulations can erode their profitability and discourage entrepreneurial ventures. In Katsina State, many local traders report difficulties in managing tax-related expenses, which ultimately affects their operational efficiency and growth (Adebayo, 2023). This study seeks to evaluate the impact of taxation on the profitability of small-scale enterprises and recommend solutions to alleviate these challenges.
Objectives of the Study
- To assess the impact of taxation on the profitability of small-scale enterprises in Katsina State.
- To identify the challenges faced by local traders in complying with tax regulations.
- To propose policy recommendations for optimizing the tax system to support small businesses.
Research Questions
- How does taxation affect the profitability of small-scale enterprises in Katsina State?
- What challenges do local traders face in complying with tax regulations?
- What policy measures can optimize the tax system for small businesses?
Research Hypotheses
- H0: Taxation does not significantly impact the profitability of small-scale enterprises.
- H0: Challenges in tax compliance do not significantly hinder business operations.
- H0: Proposed policy measures do not significantly improve small business profitability.
Scope and Limitations of the Study
The study focuses on local traders in Katsina State, analyzing the relationship between taxation and profitability. Limitations include potential biases in trader responses and variations in tax policies across regions.
Definitions of Terms
- Taxation: Mandatory financial charges imposed by the government on individuals or businesses.
- Profitability: The ability of a business to generate income relative to its expenses.
- Small-Scale Enterprises: Businesses with limited capital, workforce, and market share.
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