The effect of local government taxation on small and medium enterprises in Oshimili South Local Government Area, Delta State.
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Background of the Study
Local government taxation is a critical source of revenue for community development, yet it also has significant implications for the performance of small and medium enterprises (SMEs). In Oshimili South, taxation policies are designed to generate funds for public services, but they may simultaneously impose financial burdens on SMEs (Eze, 2023). SMEs are pivotal to local economic growth, providing employment opportunities and stimulating innovation. Recent studies have shown that an equitable taxation system can enhance business growth by ensuring that taxes do not stifle entrepreneurial activities (Udo, 2024). Conversely, excessive taxation may reduce profit margins, discourage investments, and lead to business closures (Chukwu, 2025). The historical evolution of local taxation in Oshimili South reflects a balancing act between revenue generation and fostering a conducive business environment. This study will examine the impact of local government taxation on the performance of SMEs by analyzing tax structures, business responses, and economic outcomes. Through a combination of surveys, case studies, and financial data analysis, the research aims to assess whether current taxation policies support sustainable SME growth or if reforms are needed to minimize adverse effects. The findings are expected to contribute to policy recommendations that can improve the fiscal environment for SMEs, thereby promoting economic development and job creation (Afolabi, 2023).
Statement of the Problem
Despite the role of local government taxation in funding essential services, SMEs in Oshimili South face significant challenges due to perceived tax burdens. Many entrepreneurs argue that high tax rates reduce their competitiveness and inhibit business expansion (Ibekwe, 2023). Inconsistent tax policies and the lack of clear guidelines often lead to confusion and compliance difficulties. These issues have resulted in a decline in SME performance, with some businesses reporting reduced profitability and even closure. The tension between the need for revenue generation and the sustainability of SMEs underscores the necessity of a critical examination of current taxation policies. This study aims to identify the specific factors that contribute to the adverse impact of local government taxation on SMEs and to propose measures that can mitigate these effects while ensuring that the government meets its revenue requirements (Okafor, 2024).
Objectives of the Study:
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To evaluate the impact of local government taxation on SME performance.
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To identify challenges faced by SMEs regarding tax compliance.
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To propose policy recommendations for a more SME-friendly tax regime.
Research Questions:
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How does local government taxation affect SME profitability in Oshimili South?
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What challenges do SMEs face in complying with tax regulations?
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What policy measures can alleviate the tax burden on SMEs?
Research Hypotheses:
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H1: Local government taxation significantly impacts the profitability of SMEs in Oshimili South.
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H2: High and inconsistent tax rates negatively affect SME performance.
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H3: Policy reforms aimed at tax relief will improve the sustainability of SMEs.
Significance of the Study
This study is significant as it assesses the impact of local government taxation on SMEs in Oshimili South. The research findings will provide policymakers, business owners, and economic planners with valuable insights into how taxation policies can be optimized to support SME growth while ensuring necessary revenue generation. The study’s recommendations are expected to contribute to creating a more balanced fiscal environment that fosters business development and job creation (Umeh, 2023).
Scope and Limitations of the Study:
The study is limited to examining the effect of local government taxation on small and medium enterprises in Oshimili South Local Government Area, Delta State, and does not extend to other forms of taxation or regions.
Definitions of Terms:
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Local Government Taxation: The system of taxes levied by local government authorities to fund public services.
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Small and Medium Enterprises (SMEs): Businesses that operate on a small or medium scale in terms of revenue, staff, and market reach.
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Tax Compliance: The process by which businesses adhere to tax laws and regulations.
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