Effect of Tax Compliance on Small and Medium Enterprise (SME) Growth: A Case Study of SMEs in Kabale District

This study aimed at examining the effect of tax compliance on the growth of Small and Medium Enterprises (SMEs) in Kabale District, Uganda. Using multiple logistic regression analysis, the research aimed at assessing the relationship between tax compliance and SMEs' financial performance, access to government support programs, and overall business growth and sustainability. Data was collected from 150 SMEs operating in Kabale District through structured surveys. The regression analysis revealed that tax compliance had a significant positive impact on SMEs' financial performance (odds ratio = 2.448, p < 0.05). Tax-compliant SMEs were 3.34 times more likely to access government support programs, formal financial services, and business development resources. Additionally, tax compliance was found to significantly enhance business growth and sustainability, with compliant SMEs being nearly five times more likely to experience business expansion, job creation, and improved market competitiveness (odds ratio = 4.998, p < 0.05). The study concluded that tax compliance is a critical driver of SME growth, financial success, and access to vital resources in Kabale District. Tax-compliant SMEs are more likely to benefit from improved financial performance, increased access to resources, and sustained business expansion. Based on the findings, the study recommends that the government simplify the tax compliance process, provide incentives for tax-compliant SMEs, offer financial literacy programs, and enhance access to financial services for SMEs. Furthermore, continuous monitoring and evaluation of tax policies should be implemented to ensure their effectiveness in promoting SME growth.