Effects of Government Taxation Policy on Operational Cost Level of SMEs in Uasin Gishu County, Kenya

Abstract

The objective of the study was to assess the effects of the government taxation on the operational cost level of SME of Uasin Gishu County. The study was interested in this research because every business, no matter what its size, has operational costs and the taxes paid by a business are considered as one of these operational costs. The researcher employed explanatory research design. The target population of this study comprised of 1785 SMEs operators mainly drawn from services (685) and manufacturing (1100) and 2 officials from the Ministry of trade and Uasin Gishu County. The researcher made use of stratified random and simple random sampling. Primary data were obtained using questionnaires, personal interviews and document analysis. Secondary sources include: internet, textbooks, government publications, journals, libraries, archives and government offices. The study conducted both quantitative and qualitative data. The study used the triangulation method of data collection. SPSS version 18 software and Microsoft Excel were used for all the data analysis and interpretation. The data were analyzed statistically using correlation analysis, descriptive and percentage analysis methods. The Kaiser-Meyer- Olkin was used to measure sampling adequacy while Bartlettsest test the suitability of the data for exploratory factor analysis. Correlation analysis was used to test hypotheses and showed the relationship between taxation policies with the levels of the relationship between the predictor variables of taxation policy, operational cost level. The strength of the linear relationship among variables was assessed using Pearson product moment correlation. The Durban-Watson statistic was used to examine if the prediction of dependence errors were correlated. Descriptive analysis, as an alternative to a test of hypothesis through logistic regression model was used to provide evidence of the impacts of selected variables on profitability and the growth of SMEs. Multiple regression as a statistical technique was used to examine the way a number of independent variables relate to one dependent variable. The Multiple Regressions Analysis was used to determine the relationship between independent and dependent variables. The coefficient of multiple correlations is symbolized by the correlation R which indicates the strength of the correlation between the combination of the predictor variables and criterion variables. The analytical model was developed and justified in the literature review, was used to provide the structure for the empirical analysis. Statistical method of the Shapiro- Wilk test was used to examine the normality distribution of the independent and dependent variables using SPSS. The findings of the study established that, government taxation policy variables, the R2 of operational costs increased to 0.183 indicating that the dimension of government taxation policy contributed an additional 17.3% of the variance in operational costs. The study concluded that, the government taxation policy had a significant impact on profitability and growth of SMEs through positive and negative effects on profit and growth dimension of operational costs.