The chapter is concerned with the background of the study, statement problem, purpose of the study, objective of the study, research questions and scope of the study and the significance of the study. 2. 1 BACKGROUND OF THE STUDY The income tax Act and constitution are the main legal basis for charging income tax. It is chargeable to both artificial and mutual persons hence can be businesses, companies and people. According to Bahemuka (2001), income tax administration is the identification of tax payer, assessment of tax payable and collection of tax dues.
The administration of income tax involves identification of tax payer which is done with reference to natural or artificial persons who earns income, assessment of tax payable which is ascertainment of taxable income as detailed by income tax Act 1997, collection of tax due which may be paid as either provisional or final tax (section 104. 122 and 113) and also involves tax educators and monitoring their performance Obwori , (2003).
Profitability according to Ny’ ang’a (2010) refers to the state of organizational performance where turnover is greater than input costs.
It is also the ability of an organization to generate revenue that is over opportunity cost of the time and opportunity is evident in financial performance of the business, the quality of the services offered, the way resources are utilized, flexibility, innovation, Obwori, (2003) The state of profitability of small scale business in Uganda is affected by high levels of tax employed, daily expenses and low average sales. The table below shows the average monthly sales as follows: Table1. 1. 1: Average monthly sales onth| Jan| Feb| Mar| Apr| May| Jun| Jul| Aug| Sept| Oct| Nov| Dec| Average sales inUGX millions| 7. 5| 10| 8. 5| 6. 5| 11| 9| 8. 5| 8| 6| 5. 5| 7. 5| 17| Source: UBOS According to the table 1. 1. 1, the month of October had the lowest average sales of 5,500,000 shs may be due to increase in daily expenses that were incurred compared to December which had the highest average sales of 12 millions may be due to the festive season which increased the daily sales as it is a boom month. Other month were between six millions
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Income tax in Nakawa has left many businesses with a number of challenges that include unfair treatment of tax payers, tax payers undergo a lot of processes some of which are not necessary, limited understanding of tax obligations as a result of inadequate education Bahemka, (2001) The state of profitability may be increased by applying for loans at low interest rates, minimizing expenses and improving on the average sales thus more earnings and higher profitability. But despite of the above effort, the earnings are still down, with the continuation of these challenges of poor tax administration, businesses may be forced to cease. 2. STATEMENT OF THE PROBLEM Despite the measurements that have been put in place to increase earnings and profitability through loans from Micro- financial institutions, Ugandan vendors have not been able to attain high earnings and profitability due to high tax levied on their products resulting into increasing expresses and sales leading to poor tax administration system that is exploitative. If this is not corrected most small businesses will cease operations. 2. 3 PURPOSE OF THE STUDY The purpose of the study will be to establish the relationship between income tax administration and profitability of small scale businesses in Uganda .
4 OBJECTIVES OF THE STUDY a) To assess the income tax administration system b) To establish the level of profitability and earnings of small scale businesses in Uganda c) To establish the relationship income tax administration and earnings of small scale businesses. 2. 5 RESEARCH QUESTIONS The researcher will be guided by the following research questions to successfully reach the above objectives. a) How is income tax administration b) What are the levels of earnings of small scale businesses? c) What is the relationship between income tax administration and profitability earnings of small scale businesses? 2. SCOPE OF THE STUDY 2. 7. 1 Geographical scope Uganda ( Nakawa), Nakawa is chosen because it’s one of the oldest markets in kampala and it boosts of a variety of commodities and it forms a large tax base and it will also be convenient for the researcher as it is near. 2. 7. 2 Subject scope The researcher will concentrate on income tax administration and profitability earning of small scale businesses. Income tax administration being the independent variable deals with identification of tax payers, assessment of tax payable, variable deals with financial performance, quality of services and way resources are utilized. . 7 SIGNIFICANCE OF THE STUDY a) The study will help the tax administrators to generate more information relating to the earnings and profits of small scale businesses. b) The study will help tax policy makers to make revision in the policy and administration. c) The findings will be added on the existing literature about the subject matter of income tax administration and profit earnings of small scale businesses that may be useful to other researchers. CHAPTER TWO LITERATURE REVIEW 2. 0 INTRODUCTION
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This chapter deals with literature review of the study. 3. 8 DEFINITION OF TERMS 3. 9. 3 Income tax This is a tax that is chargeable to both artificial and manual persons, that is the companies and people. The income tax Act and constitution are the main legal basis for charging income tax. A famous British Judge once said, “income tax is I may be pardoned for saying so, is a tax on income. It is not meant to be anything else. It is one tax, not a collection of taxes essentially district” Behemuka, (2001) 3. 9. 4 Tax
A tax is a compulsory contribution from a person to the government to defray expenses incurred in the common interest of all, without reference to special benefits conferred, Saleemi, (1996).
A tax can also be defined as contribution levied on any person, property, business or local government Tayebwa, (1998).
3. 9. 5 Taxation This is a concept that involves compulsory and non refundable contribution exerted by government for public purpose, that is to say, the payment is not followed by government for public purposes Tumuhimbise, (2000).
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Therefore a tax is a government compulsory levy imposed upon the tax assesses.
This means that one paying the tax is compelled to do so and if for purposes of contributing to the general revenue pool from which most government expenditures is financed. This may be individuals, group of individuals, or other legal persons. Therefore, taxation refers to the assessment, administration and management of taxes. It deals with raising public revenue, managing public expenditure and public debt. 3. 9. 6 Income tax administration This refers to the identification of the tax payer, assessment of tax payable and collection of tax due Bahemuka, (2001).
3. EVOLUTION OF INCOME TAX The tax Act and the constitution are the main legal basis for charging income tax. The chargeable income of a person for the year of income is the gross income of the person during the year less total deductions allowed under the Act. 3. 10. 7 Exempted income This refers to the income which is free form as subject to the income tax, that is, no tax is chargeable to such categories of incomes include, income of listed institutions like USAID, UN, IMF, incomes of exempt organizations like religious institutions, charity institutions. 2. 2. Chargeable incomes Chargeable income of a person for a given year of income is the gross income less allowable deductions. That of the income is not exempted and therefore subject to tax assessment. 2. 3. 0Identification of the tax payer Taxes are imposed on income earned and the identification of the tax payer is done with reference to natural or artificial person who earns an income. Subject to and in accordance with the Act, A tax to be known as income tax shall be charged for each year of income therefore imposed on every person has chargeable income (sec (I)).
Where the gross turn over of resident tax payer for the year of income derived from carrying on business or businesses is less than 50 million shillings, the income tax payable by the tax payer of income shall be determined in accordance with the second schedule unless the tax payable elects by notice in writing to the commission (sec (5)).
Table 2. 2. 1 Gross turn over (shs. p. a)| Tax (shs)| Up to 20,000, 000| 100,000| 20,000,000-30,000,000| 250,000 or 1%| 30,000,000-40, 000,000| 350, 000 or 1%| 0,000, 001-50,000,000| 450, 000 or 1%| 1% gross turn over or lump sum taxes of the band whichever is the lowest, Bahemukka (2001) Source : Primary data. 2. 3. 2 Collection of a tax due Tax is paid in a number of ways, according to the Act, tax may be paid either provisional or final tax (see, 104,112 and 113).
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The collection is activated by someone acting as an agent of the tax Authority. 2. 3. 3Provisional tax Two distinctions should be noted between an individual tax payer and payers other than an individual.
A tax other than an individual is required to pay provision tax at two intervals, the 1st installment is required to be paid on or before the date when income tax is a tax o income and it is one tax and a whole collection of taxes Bahemuka, (2001).
However for the purpose of this research, business is defined as any trade profession or adventure in the nature of trade but not employment (Act 1997) Business income refers to any income derived by a person carrying on business (see 19 (1)).
The income ax usually applies only to income in excess of certain figures and thus law income groups and freed from tax (income tax Act 1997) LDC publishers printing press. The Act imposes a threshold on the resident person tax at shs 1560,000 per annum which is equal to shs 130,000 per annum, the bond system which has three of 10% , 20 % and 30%. Those rates are found in 3 schedule, parts, the Act includes all the kinds of remuneration whether in cash or paid as taxable income, the Act also put all employees both the government of the same level, therefore payment of benefits by employees have be halted. 2. 3. 4Assessment of tax payable
Assessment of tax payable is the ascertainment of taxable income. According to the Act, 1997, the commissioner is required to make an assessment of the tax chargeable on income to a tax payer based on the tax payer’s return on income and on any other information available within 7 years from the date when the return was furnished (sec. 96 (1)) However, micro and small scale business in Uganda does not furnish any return to the commissioner the provisional return is due on or before the last day of the 6th Month of the year of income which includes a substituted year of income which includes a substituted year of income.
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The second and the last installment is due on or before the last day of the year of income Bahemuka, (2001) 2. 3. 5Final tax (Sec 104) When the tax payer files the final income tax return himself, payment of any unpaid tax relating to the assessment for the year of income tax return is due filing, the tax payer published, in the self assessment list. In any other case, tax charged in any assessment, (Sec. 104 (1) (b)).
2. 3. 6Educating tax payers
This is due to make sure that the small business tax payers, particularly income tax, to get a awareness of the small scale tax payer rates that they are supposed to pay depending on the range of profits made by the small scale business, (See (1)), make them aware of the fines and penalties that are charged in case one defaults payments and to ensure them about income tax as a source of Government revenue Mugume, (2006) 2. 3. 7Monitoring performance
This is done to monitor whether they are making profits or losses, hence small scale businesses (Uganda) base on the profit level to determine the tax that should be taxed, it is either increasing or decreasing Saleemi, (2001) 2. 3. 8Assessment of small business According to the income Act, 1997 as amended 2005, it provides for an alternative income tax assessment mechanism known as income tax for small scale business tax payers whose annual gross turnover or sales are less than 50,000,000 Uganda Shillings.
According to Tumuhimbise, (2000), the business is required for are such that: a) At the beginning of the accounting period, the business is required to submit provisional return. This should be submitted by March of the following year. b) At the end of the accounting period, is a required to submit the final return upon which the final assessment is one. c) The final tax to be paid by the business is the difference between the final tax assessment figure less provisional tax previously paid and with holding tax if any. 3. 10 A RETURN OF GROSS TURNOVER
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A return of income is a declaration made on a prescribed from to the commissioner on which income earned or loss made during the year, (ITA 1997 as amended 2005).
There are two categories of returns. 2. 3. 1Provisional return This declaration is used to determine tax for the year of income payable in advance before the year end as and it is made by the person who derives or who expects to derive any income during the enduring year incomes. 2. 3. 1Final return The ITA (1997), as amended in 2005 further stipulated that tax payers are required to file a return of income with URA door each year of income.
It must be filled not later than four months after the end of the year. Where a tax does not file a return, the tax payer will automatically be assessed based on the standard tax in the bracket tax in the bracket in which such tax payer’s fall. According to URA publication of tax education (return of income) edition 2004, states that return can be prescribed by the commissioner requiring any person chargeable tax to provide information by completing the form and delivering it to URA within a specified time period of four months after year of income to which the returns related. . 3. 2Computation of tax liability According to income tax 1997 as amended in 2005, in computation of tax liability for small scale business is based on the gross turn over the tax payable is calculated and determined on the basis of 1% of the gross turn over. Assume the business with gross turnover of shs. 25500,000 per annum. Computation of the tax liability will be based on the tax bracket as provided for the under the second schedule of the ITA1997 as amended 2005 as follows. The business tax liability will be computed as 25500,000×1% =25,000. 55,000/= is the tax liability for the above. 2. 3. 3.
Person not eligible. The income tax (Act 1997) as amended 205 specifies the categories of the business or individuals not eligible to pay income tax even when the turnover of such business is less than 50 million UGX, these are persons carrying on the following businesses, for providing medical, dental, architectural, engineering, accounting, legal or other professional services, public entertainment services, public utility services or construction services sec 4(7) ITA 1997. . 4. 0 Finality of tax Tax is computed on the basis of gross turnover and it is the final tax. This means that no deduction allowed in respect of any expenditures of losses in the production of the business income (ITA, 1997) as amended 2005. 2. 4. 1 optional for income tax assessment According to URA tax news Vol. 2 No. 2(sept-oct, 2003), the law provides for an option to the tax payer by notifying the commission in writing that he/she prefers (opts) for assessment under the net income methods.
In order to qualify, a tax payer is required to submit the election notice together with his/her annual income return for the year by the due date of filling such returns. 2. 4. 2 Penalty According to the income tax Act (1997), as amended 2005, provisional return is expected to be 90% accurate. The tax payer will be penalized if the actual income at year end significantly varies from the tax payer estimates. The penalty is 20% of the difference between the taxes calculated In respect of 90% of the tax payers actual chargeable income for the year of income.
This implies that 20%(90% x actual tax) provisional tax declared, where a tax payer fails to finish an estimate of gross turnover or chargeable income for the year of income, the consumption of the estimated installment of provisional tax for small scale business. (25% X A)-B Where A- is the estimated tax payable by the provisional tax payer for the year of income. B-it’s the amount of any tax with held under the act prior to the due payment of installment, from any amount derived by the tax payer during the year of income, which will be included in the gross turnover of the business. . 5. 0 Profitability Profitability is the ability of an organization to generate revenue that is over and above The opportunity cost of the time and the opportunity cost of capital invested in the business. Roger et al, (1996) According to Nyang a, (2001).
It refers to the state of organizational performance where turnover is greater than input cost. A company earns profit to survive and grow over a long period of time.
Ducker (1999) noted that the profitability of an enterprise is a necessity for its survival he said that it is seen as a determinant of live hood, income and employment to him, it is subject to an alien denomination, it is arbitrary, if not exploitation. Profitability is an absolute necessity for the business to produce at the very least the profit required to cover its own future risks, the profits required to enable it to stay in business and to maintain intact the wealth producing capital of resources.
He noted that profitability will effect business behaviors and business decisions both by setting rigid limits t them and them and by testing there validity. Profits can be defined and measured in terms of gross or net profit to sales in this case the total profits of a firm including cost materials and other expenses will be compared to total profits of a firm including cost materials and other expenses will be compared to total sale to get the real profit of the firm.
Emphasis will be put on the ration of gross profit before interest and taxes (PBIT) to total revenue or sale thus PBIT * 100 in addition PBIT will first be analyzed and the profit after interest (PALT) will also be determined both ratios will be compared and the effect analyzed. Business performance can be measured in terms of market share, sales volume and profitability Kotter (2000).
According to Ftzergerald et al. 1989, explains the profitability of small scale business basing on the following elements. 2. 5. 1Financial performance
This is concentrating on capital structure, liquidity, efficiency and market share. It’s not easy to review financial performance of small scale businesses, empirically using financial report. The greater percentage of small scale business 61% do not keep records (from which financial reports could be extracted) while 23% keep partial records and 16% keep complete records, albeit a big percentage of them improperly (Ugadev / Acor 1988).
A subject measure of how well a firm can use assets from its primary mode of business and generate revenues.
This term is also used as a measure of affirms overall used and compare similar firms across the same industry. There are many ways to measure financial performance but all measures should be taken in aggregation, link items such as revenues from operations, operations income or cash from operations can be used as well as total unit sale, further more, the analyzing may wish to look deeper into financial and seek out margin growth or any declining debt. 2. 5. 2Capital structure
The theories have been found, several theories of capital structure have been proposed, the theories have been identified by Durand which includes the net income approach, the net operating income approach and the middle ground assumptions about how investors’ value affirms debt equity, for convenience we examine these positions under the assumptions of zero rates. 2. 5. 3Liquidity This is the ability to cover an asset to cash quickly, it is easier to invest in liquid assets them illiquid one because it’s easier for one to get the oney out of the investment. This is also the ability of an organization to meet its current financial obligation, it’s measured in terms of debt capacity of borrowing capacity to meet short demands for the future according to Bringham, (1950) 2. 5. 4Efficiency This refers to the degree to which the quality is exercised, that is to say, the ratio of the work done to the effort used, usually the relations of output to input although output and input usually measured in financial terms, Kotter, (2000).
2. 5. 5Market share
This refers to the percentage of total business sales that is made up by percentage of overall volume or business in a given market that is controlled by one company in relation to its competitors for instance total sales of certain products in a market is USD 100, 000 and the company in question sold USD 20,000 worth of that product then the company had 20% market share. Market is most meaningful in relative sense that is when a company compares a market share. Market is most meaningful in relative sense that is when a company compares a market share its commands to the percentage held by its largest competitors.
The important factor is computing the relative market share is not exact number associated with the sales volume. To calculate the market share, a small business owner to calculate total sales achieved by his / her company in the market over the same period of time. 2. 5. 6Quality of service It is an inherit distinguishing characteristic of service offered by a business. It can be elaborated basing on two parameters that include competence and availability. Competence is a relative new way of thinking about how organizations gain high performance for a significant period of time. 2. 5. 6Quality of service
It is an inherent distinguishing characteristic of service offered by a business. It can be elaborated basing on two parameters that include competence and availability. Competence is relatively new way of thinking about how organizations gain high perform for a significant period of time. Established a theory of early 1990’s explains how organizations can competitively advantage in systematic or structural way. Sanchez, R (2005) Competence also refers to the state or quality of being adequately well qualified, ability to perform a specific task, action or function successfully, Kotler, (2000) . 5. 7Availability Refers to a condition of being ready for use and not immediately committed to other tasks. It is a degree to which a system, subsystem or equipment is operable and committable state at the start of omission, when the omission is called for at an unknown , that is to say a random time, simply put , the ration of time a functional unit is capable of being used during a given interval to the length of the interval, the supply in terms of type, volume and location health resources and services relating to the demands of a given individual or community, www. wikipedia. om 2. 6. 0Resource Utilization Considers how efficiently are being utilized by the business, in other words it emphasizes how the available total resources are used by the business to increase on its production levels. Resources of the business may include plant, labor force and raw materials. 2. 7. 0Flexibility This is an opt heading for assessing the organizations ability to deliver at the right time in respect to precise customer specification and to cope with fluctuating demand it is widely recognized as one of the most important dimension of a successful manufacturing strategy.
Various quantitative models have been developed over the years to study its different facts in applications. The relevant notion of flexibility, it’s a measure and its properties very much depends on the specific details of a particular production and operations environment. This justifies the need for a large number of models each time turned to the specificities of a particular ontext, various existing models address the problem of flexibility in many ways in different context, they also leave unexplored situations for example of flexibility in many ways in different context, they also leave unexplored situations for example what is the relevant concept of flexibility in the context quelling net work models of manufacturing? A complete answer to this question is certainly beyond the scope of this paper. Harold, K and Heinz W 990. 2. 8INNOVATION It is assessed in terms of both innovation process and the successful of individual innovation, ACCA tax professional paper 1, (1996).
It’s the basic driving force behind entrepreneurship and the creation of small business. When an individual comes up with an idea that has not previously been explored or a niche that the larger business has not been able to exploit, he / she may be able to turn that idea into a successful business venture, “ideas are the fuel that keep entrepreneurship fires blazing” Satya Screenivias wrote in the business journal sorry entrepreneur realized the fact ideas can originate worth while than a well researcher projects, of course not every new idea has the potential to become a successful business.
According to Weyrich, (1998), sustaining innovation the business organization requires an understanding of the company core competencies, an innovative culture and systematic approach. He described three phase in the process thus the innovative phase in which the ideas are generated, the implementation phase that involves the selection of the best ideas and developed further, the market penetration phase in which the ideas are exploited to commercial game. the process is an ongoing one with feedback used to close the loop screen vas (1997).
2. RETURN ON INVESTMENT One of the successful use control techniques is that measuring both the absolute and relative success of the business unit, by the ration of earning to investment of capital. The return on investment acts as a yard stick or tae of return that a business can return on the capital allocated to it. This tool therefore regards profitability not as an absolute but a return on capital employed in the business. The goal of the business is seen accordingly as that of optimizing returns from capital devoted to a business purpose.
Return on investment is computed on the basis of capital turn over multiplied by earning as a percentage of sales, the formula recognizes that a business with a high turn over and a low percentage of earning to sales may be more profitable in terms of return on investment than another with a high percentage of profits to sales but with a low capital turn over. Kootz & Weilgrich (1990).
2. 10Test profitability According to serge et’ al (1980) profitability is the result of large number of policies and decisions chosen by an organization’s management.
Profitability ratios indicate how effectively the total firm is being managed. They further said that the goals of a business, is to earn a profit, without which it is impossible to attract investment capital from owners or creditors. That the long run survival of a business depends on its ability to earn enough revenue to satisfy all obligations and still produce a return on the owners investment, several tests of profitability are available to measure weather the amount of income is adequate.
The Rate of return =Income earned on investment Amount of investment required Return on owner equity =Net income Average owner’s equity The rate of return on owner’s equity considered as an important indication of a business’ profitability because it indicates how well business are doing with businesses are doing with business contributed by its owners. 2. 10. 1Relationship between income tax administration and profitability of small scale business.
Profitability levels of a business are in one way or another related to or affected by tax administration. 2. 10. 2 Assessment and profitability According to Shulz et’ a assessment means measurement of income they say that when tax is self assessed, an essential function of tax assessor or administrator should be to protect the tax payer against over assessments. Since tax payer can not master the details of the income tax accurate and impartial information should be provided by tax offices. If the tax payer over pays, he should receive a refund.
But the tax assessors often press the government’s case against avoidance and evasion, they tend to forget their responsibility to protect the tax payer, may become arbitrary, a small tax payer in literary, a small tax payer in the process will be over taxed and thus reducing his profitability and will have no chance of getting justice. According to Jackson (1986), he says that whenever governments need to raise additional revenue, tax system is carefully reviewed. However the taxes adopted by the particular government might be burdensome.
For instance a tax on the gross turn over of the business is regressive in nature. Those with higher gross turn over would be taxed less than business with low gross turn over. 2. 10. 3Finality of tax and profitability Income tax is computed on the basis of gross turn over and is a final tax, implying that no further assessment is required, ATA (1997), as amended 2005. Therefore, where a business has been over taxed, the owner has no room for further assessment. And in this case the over assessment amount will affect profitability of a business. Harvey (1972) . 10. 4Identification of tax payer and profitability This involves the assignment of individual tax identification number by an acceptance agent this is an individual, business, organization which is authorized by the internal revenue service to assist to assist individuals in obtaining individual tax identification numbers, certified acceptance agents review and applicants documentation, complete certificate of accuracy and forward the certificate and application to the internal revenue for processing, some acceptance agents may change a fee. (Wikipedia. om) According to Bahemuka (2009), identification of tax affects profitability in that if the tax payer is not assigned an individual tax identification numbers, certified acceptance and application to internal revenue for processing, some acceptance agents may change a fee. (Wikipedia. com) According to Bahemuka (2009), identification of tax payer affects profitability in that if the tax payer is not assigned an individual tax identification number, then it will become difficult to tress the tax payer which will later affect the business tax payer and the internal revenue service. . 10. 5Monitoring the performance and profitability A successful business requires the ongoing monitoring of performance in order to generate data which to is to judge the success or otherwise of specific strategies improvement in performance can only be realistically achieved when management is properly informed about performance to this end it is important to identity key performance indicators that will enable management to monitor progress.
Hatry, (1972) According to Hatry, this will affect profitability in that, if the performance is not monitored well, the business may end up being over taxed even if it made low profits because there will be no evidence to show whether the business performance increased or lowered due to lack of monitoring performance, hence affecting profitability. 2. 10. 7Return of gross turn over and profitability Tax may influence the accounting methods a business selects, to determine its profitability often are used as a basis by business for deciding whether to set up new business and the type of business to start up.
The preparation of an income tax return for a small business is relatively simple, however simple, however, both small and large businesses use the service of tax accountants. The information needed for income tax returns of the business record, Everald and Burrow. According to URA, a publication of tax education (return on income), edition, it states that where a tax does not file return, the tax payer will automatically be assessed to the standard tax in the bracket such a tax falls.
This however affects transactions and in the small scale businesses hardly keep records if their business transactions and in such a tax payer fall. This however affects profitability in that small businesses hardly keep proper records if their business transaction and in such a case it is not easy to determine the gross turn over, and the bracket of tax, a business will fall in, therefore accessories normally take or consider the upper limits of the tax in the brackets as tax liability. According to Kaldor and Nicolas, (1965) tax policies matter a greater deal n business they concur that unfair tax policy will reduce profitability if the cost goes up, the cost however is passed along to consumers through higher prices and to owners of the business through returns they contented that, if any state imposes a great over burden on enterprises than neighboring state. Businesses will cross the border to some extent to a lower jurisdiction where profitability will be higher. Kaldor and Nicolas concluded by saying that on gross turn over impacts negatively on a business profitability since it reduces the enterprise’s profit margin, that even if the business by the business and the consumers. . 11RELATIONSHIPS This is when it is having an adverse impact on the performance of small business, the differences in taxing small scale business and a large business equally, the different effects on the level and size business. The effect of the IT policies on the accounting systems used by the business taxed. 2. 12Conclusion From the available literature, it should be suggested that income tax administration has some relationship with business profitability.
Some scholars indicated that income tax administration can be used as a tool to promote young business profitability and that government uses tax policy as a measure of redistributing incomes. Further field research shall be carried out to collect more information about the relationship between the two. CHAPTER THREE METHODOLOGY 3. 0 INTRODUCTION This chapter is description of the research design, survey population, sampling design and size sampling procedures, sources of data analysis, method of data collection and data collection procedures which the researcher will use to obtain analyze and interpret data. 3. 1RESEARCH DESIGN
The researcher design will be cross sectional, that is to say, a combination of descriptive and quantitative method. This is because it’s convenient and appropriate in terms of limited resources and time. The qualitative design will concern with data that needs description. It will be used to address questions introduced by, what, why. It will focus on how things happen and it will be about attitude and opinion of respondents. It will be used to collect data about the activities carried out by the Uganda Revenue Authority Taxation system in Uganda Nakawa market, the strengths and weaknesses of the Uganda Revenue Authority System.
The quantitative design will be mainly used to express numbers and statistics to answer questions like how many/much. 3. 2STUDY POPULATION The study will be carried out in Nakawa market, it’s estimated to have over 1,000 small scale businesses, and the population includes the employees and owners of general merchandise, hardware dealers, cloth and footwear, maize millers, tax administration among others. 3. 3SAMPLING DESIGN AND PROCEDURES 3. 3. 1Sampling method Both stratified and purposive sampling method will be used.
It will give equal chances to every member in the sample size; the study will be deliberately to pick the elements of the population that will be relevant to the purpose of the study. This saves time and less cheap. 3. 3. 2Sampling size This sample size will be 40 respondents, it will include, small scale business owners, tax administrators. 3. 3. 3Sampling procedure Stratified random sampling will be for determining proportionate number of elements in the various business categories and income tax administrators.
A simple random sampling method will be to select respondents in each stratum, so as to give equal chance of being selected. 40 Respondents will be expected to participate in this research Table 1: Categorization of respondents Category | Expected Respondents | Managers and Administrators | 5| Vendors | 20| Tax collectors | 10| URA officials | 3| Total| 40| Sources: researchers design 3. 4. 0SOURCE OF DATA Data will be collected from both primary and secondary sources. The main source of primary data will be the small scale business, questionnaires and interviews will be asked to get data.
The secondary data will include: the literature on tax administration and profitability, journals, books, newspapers as well as the internet. It will supplement primary data to get information. 3. 5. 0DATA COLLECTON METHODS AND INSTRUMENTS 3. 5. 1Questionnaires Both open and closed ended questions will be involved open ended questions will enable the respondents give their opinions about income tax administration and profitability. The questionnaires will relatively be short and simple worded to enable good response and compliance. 3. 5. 2Interviews
Personal interviews will be carried out to increase the response rate. This method is flexible and it enables probing especially where specific answers will be needed and where the respondents will be unable to understand. 3. 5. 3Observation This will be done by the researcher getting involved in the field physically. No question will be asked but the researcher will watch the business activities and concludes how much is sold in the market, the pricing, the frequency of customers and so on. 3. 5. 4Data collection procedures The researcher will get an introductory letter from the institution.
The letter will enable the researcher to interact with respondents with minimum supervision. Interviews guide and questionnaire will be used to collect data, then the answered questionnaires will be analyzed and interpreted by the researcher. 3. 6. 0DATA ANALYSIS AND PRESENTATION 3. 6. 1Data analysis The collected data will process into a convenient and manageable from to ease data analysis process. This involves going through the questionnaires to ensure that all of them are answered with consistency; it will involve cleaning, coding and entering it for purpose of analyzing it. . 6. 2Data presentation The data will be analyzed and tabulated into percentages and presented using charts and tables with the help of a Microsoft Excel package. The presentation will be based on the research questions. This will help to avoid misinterpretation of the findings. 3. 7. 0LIMITATIONS OF THE STUDY i. The study was affected by financial constraints as it will involve costs such as transport, surfing the net, typing and printing as well as the welfare of the researcher. ii. Some books were hard to get iii.
Time frame, this is because the researcher will be undertaken concurrently with other courses units. AREAS FOR FURTHER STUDY * The impact of income tax administration on revenue collection * The impact of income tax administration on the general performance of medium and large scale businesses * The major limitation of tax administration REFERENCES 1. Income tax act (1997), laws of Uganda 2. Income tax act, (1997), CAP. 340 as amended to June 2005, DTD 3. Kotler, p (2000), principles of marketing, 11th Borth Western University, Prentice hall 4.
Mannaseh, T (1999) the fifth quarterly seminar on coping taxes, makerere university journal publication: Makerere University Printery 5. Mugume C (2006), managing taxation in Uganda. 1st Ed , PMG Kampala, Uganda 6. Mannaseh, T (2000), introduction to taxation in Uganda. (1st Ed. )Kampala, Uganda. Fountain publishers 7. Ny’ang’a, M. (2001), business growth, survival and profitability, business goals paper presentation pg9 8. URA tax education, return of income (edition 2006) 9. Kaldor and Nicholas, (1965), the role of taxation in economic development, the johns Hopkins press, Baltimorea
