Thesis:

An analysis of the influence of taxation on the Performance of small and medium enterprises in Mogadishu, Somalia

Small and Medium Enterprises (SMEs) play a crucial role in driving economic growth and development in Mogadishu, Somalia, yet they face significant challenges related to taxation. This study investigates the impact of taxation on the performance of SMEs in Mogadishu, with a specific focus on tax rates, income tax, and excise tax. Utilizing a descriptive research design, the study integrates quantitative and qualitative data collection methods to explore the relationship between tax policies and SME performance metrics such as profitability, growth, and compliance. Primary data was gathered from SME owners and managers using structured questionnaires and interviews, with a sample size of 172 selected from a target population of 300 SMEs operating in Mogadishu. Secondary data from relevant government reports and policy documents was used to complement the analysis. Quantitative data was analyzed using SPSS for statistical insights, while qualitative data was subjected to thematic analysis to capture nuanced perspectives. The study is anchored in the Ability-to-Pay and Benefit Theories of Taxation, providing a theoretical framework to assess the fairness and effectiveness of tax policies. Preliminary findings highlight a complex interplay between taxation and SME performance. Excessive tax rates and administrative inefficiencies have been identified as significant barriers, leading to reduced profitability and limited business expansion. The study also reveals gaps in tax compliance, largely attributed to poor communication, limited awareness, and the absence of structured support mechanisms for SMEs. Moreover, the sociopolitical context of Mogadishu, characterized by instability and informal economic practices, adds to the challenges of tax administration and compliance. The study aims to contribute to the ongoing discourse on taxation and SME development by offering evidence-based recommendations for policymakers. These include optimizing tax rates, enhancing administrative efficiency, and fostering transparency and dialogue between tax authorities and SMEs. The findings of this research seek to empower SMEs, improve tax compliance, and support sustainable economic growth in Mogadishu. The study underscores the need for a collaborative approach involving government agencies, development partners, and local stakeholders to create a conducive environment for SME growth in Somalia.