Abstract

The study analyzes the effect of tax incentive on the growth of small and medium-sized enterprises (SMEs) in Rwanda taking SMEs in Nyarugenge as a case study. Qualitative and quantitative research approach was adopted. The population includes 49000 SMEs from agricultural, industrial, services and tourism sectors operating in Nyarugenge district. A sample of 136 SMEs was determined using Silovin and Yemen’s formula of sample size. Simple random and purposive sampling techniques were used to select the sample. The data set was analysed using descriptive statistics. A multiple regression analysis was used to explain the relation between variables. The results from the study revealed that 75.7% of the respondents agreed that they know the tax laws, 78.7% agreed that they know the tax incentives that are available to SMEs. The results further revealed that wear and tear, loss carried forward and value-added tax (VAT) refund as the most tax incentives available to Rwandan SMEs as evidenced by 100, 94.1 and 95.6%, respectively. The study indicated that there was a strong positive and significant relationship between tax incentives and the growth of small and medium enterprises in Rwanda as approved by coefficients of correlation equal to 88.8% of R-square. This meant that only 11.2% of the variation in the growth of SMEs was outside the tested variables. The study concluded that tax incentives are the key to the sustainable growth of SMEs. The government should design policies that specifically address issues related to the sustainable growth of SMEs.

Key words: Tax, tax incentive, small and medium-sized enterprises (SMEs), growth.