Effects of Tax Management Skills on Financial Performance of SMEs in Mombasa County, Kenya
DOI:
https://doi.org/10.53819/81018102t5361Abstract
Small and Medium-sized Enterprises (SMEs) are pivotal to Kenya's economic landscape, providing self-employment opportunities to numerous households. However, a significant proportion of these enterprises face sustainability challenges, with many collapsing within the first three years of operation, and 70% of the survivors failing to surpass the five-year mark. This high attrition rate is predominantly attributed to low profitability levels, leading to financial distress. A critical factor contributing to this phenomenon is the skills gap among proprietors, particularly in areas such as debt management, bookkeeping, tax management, and cash flow management, which culminates in operational inefficiencies and diminished business returns. A study was conducted to assess the effects of tax management skills on the financial performance of SMEs in Mombasa County, with net profit margin serving as the key performance indicator. The research was anchored on decision usefulness theory, which emphasizes the importance of financial information for effective decision-making, including tax planning and compliance. Employing a descriptive research design, the study targeted a population of 54,245 registered SMEs in Mombasa County, focusing on proprietors and managers. A sample size of 132 SMEs was selected through stratified random sampling, and primary data were collected using structured questionnaires tailored to address the study's objective. Data analysis was performed using SPSS software, employing both descriptive and inferential statistics. The results indicated that tax management skills had a significant positive effect on the financial performance of SMEs in Mombasa County, with a correlation coefficient of 0.509 (p=0.000) and accounting for 26.2% of the variance in net profit margin. The regression results demonstrated that for every unit increase in tax management skills, net profit margin increased by 0.414 units. The study concludes that tax management skills have a significant positive effect on the financial performance of SMEs in Mombasa County. The study recommends that SME owners and managers in Mombasa County should undergo comprehensive financial literacy training specifically focused on tax management skills, including tax planning, understanding of regulations, and strategic settlement of tax obligations. The County Government of Mombasa, in collaboration with the Kenya Revenue Authority, should establish accessible tax advisory services tailored specifically for SMEs to provide simplified guidance on compliance procedures and available incentives. Local universities and training institutions should partner with county authorities to offer regular workshops on tax management tailored to the needs of SME owner/managers, ensuring practical application of tax knowledge in business operations.
Keywords: Tax management skills, financial performance, SMEs, Mombasa County, Kenya
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