THE IMPACT OF DIRECT TAX ON THE FINANCIAL PERFORMANCE ON SMALL AND MEDIUM SIZED ENTERPRISE IN NIGERIA

The study examines impact of direct tax on the financial performance on small and medium sized enterprise in Nigeria. The study adopts a quantitative approach to achieve the objectives of the study, which is descriptive in nature. There are four independent variables taken for this study; tax compliance cost, tax incentives, tax administration efficiency and financial literacy to identify their financial performance on SMEs in Nigeria. A standardized and well-structured questionnaire was used to gauge the responses on a six-level scale. The populations of the study were 1.9 million active SMEs in Lagos, Abuja, Kano, Rivers, and Oyo State, and the sample size of the study is 400 questionnaires. 400 respondents were received through e-mail and in printed form. The impact of direct tax on the financial performance on small and medium sized enterprise in Nigeria, was formulated by the conceptual framework of this study and tested by computing the validity and reliability of the instrument, using the factor analysis as well as Cronbach’s Alpha to prove the eligibility. Findings revealed tax compliance cost had a significant negative effect on financial performance, tax incentives demonstrated a significant positive effect on financial performance, tax administration efficiency showed a significant positive effect on financial performance in Nigeria. It is concluded that Nigeria’s SME sector is highly sensitive to the structure and administration of the tax system in Nigeria. The study recommended that the he Federal Inland Revenue Service (FIRS) and State Internal Revenue Services should simplify tax procedures, integrate filings, and leverage digital platforms to minimize administrative time and professional service fees for SMEs. Furthermore, Incentives should be sector-specific and performance-linked to encourage innovation, capital investment, and job creation. Also, enhancing tax administration efficiency can reduce filing times and errors, thus increasing compliance and satisfaction. Finally, government agencies, professional associations, and financial institutions should embed tax-focused financial literacy training into SME development programs, ensuring owners can understand, comply, and optimize tax-related decisions.