Effects of Value Added Tax (VAT) Knowledge on SMEs Performance and Factors Affecting SMEs Performance in Morogoro Tanzania

Abstract

Small and Medium-sized Enterprises (SMEs) play a crucial role in driving economic growth and development in Tanzania. However, the performance of SMEs is hindered by various factors, including the challenges posed by value-added tax (VAT). This study investigates the effects of VAT knowledge and other factors on the performance of SMEs in Morogoro, Tanzania. The research objective is to provide a comprehensive understanding of the key determinants influencing SME success and growth in the region. The study assesses the level of VAT knowledge among SME owners, examines the relationship between VAT knowledge and SME performance, and analyses the impact of factors such as business location, initial capital investment, years of experience, and type of business on overall SME performance. The supply and demand theory are employed as the theoretical framework to understand how changes in costs, induced by VAT, affect the supply decisions of SMEs and consumer responses to price changes. Despite government efforts to address challenges faced by SMEs through regulatory simplification, tax reforms, and digitalization, the performance of SMEs continues to be hindered by VAT-related administrative costs, pricing, and forecasting customer needs. This study aims to fill the research gap by providing valuable insights and recommendations for policymakers and business stakeholders to foster a supportive environment that promotes the sustainable growth and development of the SME sector in Tanzania.