Abstract
This study analyzes the effect of tax incentives on the growth of SMEs in Rwanda taking SMEs in Nyarugenge as a case study. It uses both qualitative and quantitative research approaches. The population is 49,000 SMEs from agricultural, industrial, service, and tourism sectors operating in Nyarugenge district. The study uses a sample of 136 SMEs using Silovin and Yemen’s formula of sample size by using the simple random and purposive sampling techniques. The dataset is analyzed using descriptive statistics and a multiple regression analysis is used for explaining the relationships between the variables. The results show that 75.7% of the respondents knew the tax laws and 78.7% knew the tax incentives available to SMEs. The results further show that wear and tear, loss carried forward, and value-added tax (VAT) refunds are tax incentives available to Rwandan SMEs as evidenced by 100%, 94.1%, and 95.6%, respectively, of the respondents receiving the benefits. The study also shows that there is a strong, positive, and significant relationship between tax incentives and the growth of small and medium enterprises in Rwanda as the coefficients of correlation are 88.8% of R-square. This means that only 11.2% of the variations in the growth of SMEs is outside the tested variables. The study concludes that tax incentives are the key to sustainable growth of SMEs. Hence, the government should design policies that specifically address issues related to SMEs’ sustainable growth.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Bahizi, K. A. (2013). The impact of tax incentives on the promotion of SMEs. Kigali: MIT Press.
Berger, A. N., & Udell, G. F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking & Finance, 22(1), 613–678.
Bertrand, M., & Mullainathan, S. (2003), Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy, 111(5), 1043–1075.
Broersma, L., & Gautier, P. (1997). Job creation and job destruction by small firms: An empirical investigation for the Dutch manufacturing sector. Small Business Economics, 9(3), 211–224.
Chen, D., Lee, F. C., & Mintz, J. (2002). Taxation, SMEs and entrepreneurship. Tokyo: Prentice Hall.
Chukwumerije, T., & Akinyomi, O. (2011). The impact of tax incentives on the performance of small-scale enterprises. Journal of Accounting and Finance, 23(15), 104–136.
Colmar, B. (2005). Measuring the tax compliance costs of small and medium sized businesses. Harlow: Pearson Education Ltd.
Comanor, W. S. (1967). Market structure, product differentiation and industrial research. The Quarterly Journal of Economics, 81(4), 639–657.
De Wit, G., & De Kok, J. (2014). Do small businesses create more jobs? New evidence for Europe. Journal of Small Business Economics, 42(2), 283–295.
Devereux, M. P., Liu, L., & Loretz, S. (2014). The elasticity of corporate taxable income: New evidence from UK tax records. American Economic Journal: Economic Policy, 6(2), 19–53.
Fletcher, K. (2003). An evaluation of marginal effective tax rates on domestic investment in South Africa between 1994 and 2002. Johannesburg: Pearson Education.
Githaiga, I. (2013). The impact of tax incentives on foreign direct investments inflows of firms listed at the Nairobi Securities Exchange (unpublished MBA Project), University of Nairobi, Kenya.
Goolsbee, A. (2004). The impact of the corporate income tax: Evidence from state organizational form data. Journal of Public Economics, 88(11), 2283–2299.
Gravelle, J. (2013). Corporate tax incidence: Review of general equilibrium estimates and analysis. National Tax Journal, 66(1), 185–214.
Hansson, A., & Brokelind, C. (2014). Tax incentives, tax expenditures theories in research and development: The case of Sweden. World Tax Journal, 6(2), 168–200.
Heshmati, A. (2001). On the growth of micro and small firms: Evidence from Sweden. Small Business Economics, 17(3), 213–228.
Kaplan, D. (2001). Rethinking government support for business sector research and development in South Africa: The case for tax incentives. The South African Journal of Economics, 69(1), 72–73.
Keen, M. (2013). Taxation and development: Critical issues in taxation and development. Cambridge: MIT Press.
Kothari, C. R. (2000). Research methodology: Methods and techniques (2nd ed.). New Delhi: Pearson Education Ltd.
Külter, B., & Demirgüneş, K.(2007). Determinants of profitability in retailing firms: An empirical study on ISE listed retailing firms. Journal of Çukurova University and Institutions of Social Sciences, 2(34), 445–460.
MINECOFIN. (2012). The Rwanda investment board provides tax incentives. Kigali: MINECOFIN.
MINICOM, NISR, MIFOTRI, & PSF. (2017). Small and medium enterprise development policy in Rwanda. Kigali: MINICOM.
Mintz, J., & Chen, D. (2011) Small business taxation: Revamping incentives to encourage growth. University of Calgary—School of Public Policy Research Papers, 4(7), 1–31.
The World Bank. (2013). Report on doing business. World Bank Publications.
UNCTAD. (2003). The financial grants to encourage investment and employment in non-traditional sectors. New York: UNCTAD.
Vann, R. J., & Holland, D. (1998). Income tax incentives for investment. Tax Law Design and M Drafting, 2(1), 986–1020.
Young, J. F. (2009). Decision-making for small business management (4th ed.). Florida: Krieger Publishing Company.
Zee, H. H., Stotsky, J. G., & Ley, E. (2002). Tax incentives for business investment: A primer for policy makers in developing countries. World Development, 30(9), 1497–1516.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
Twesige, D., Gasheja, F., Barayendema, J. (2020). Tax Incentives and Growth of SMEs in Rwanda: A Case Study of Small and Medium Enterprises in Nyarugenge District. In: Das, G., Johnson, R. (eds) Rwandan Economy at the Crossroads of Development. Frontiers in African Business Research. Springer, Singapore. https://doi.org/10.1007/978-981-15-5046-1_13
Download citation
DOI: https://doi.org/10.1007/978-981-15-5046-1_13
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-15-5045-4
Online ISBN: 978-981-15-5046-1
eBook Packages: Business and ManagementBusiness and Management (R0)