THE EFFECT OF INCOME TAX ON SMALL BUSINESSES: THE CASE OF ADDIS KETEMA

Abstract

This thesis examines the effect of income tax on small businesses based in mainly in Addis Ketema sub city, Addis Ababa, Ethiopia. The research is based on a comprehensive review of literature on income tax and small businesses in Ethiopia, including academic articles, government reports, and policy documents. The findings suggest that income tax has a significant effect on the profitability and growth of small businesses in Addis Ababa. Specifically, the study shows that high tax rates and complex tax regulations can discourage entrepreneurship and reduce the willingness of small business owners to invest in their ventures. The research also finds that tax compliance costs can be a significant burden for small businesses, particularly for those with limited resources and inadequate access to information and support. The study also highlights the need for policymakers in Ethiopia to design tax policies that promote entrepreneurship and support the growth of small businesses. This includes simplifying tax regulations and procedures, providing more accessible and affordable tax services, and offering targeted tax incentives to encourage investment and innovation. The research contributes to the understanding of the effect of income tax on small businesses in Addis Ababa and provides recommendations for improving the tax system for these critical engines of economic growth.