ABSTRACT 

Small and medium enterprises plays a critical function in the advancement of the Kenyan Economy. The sub-sector’s contribution to the monetary development of the country in the past few years is very evident particularly in relation to job creation, improvement in innovation, raising of people’s livelihood, as well as financial contribution to 45% of the gross domestic product(GDP) of the country,(Economic Survey-2014/2015). This research focused on the tax influence on SMEs sector growth in Voi sub-County. Taxation was viewed in three spheres namely; tax rates, tax policy and the types of taxes and how each one of them affects growth of micro and small-sized enterprises in Voi sub-County .The study benefits the various stakeholders such as the traders who will understand taxation, taxes being one of the operational costs of business and are involuntary; the legislature (Parliament) who will get informed on areas to amend in the Tax Act and include parts that serves the public wholesomely; the Kenya Revenue Authority (KRA) that will use more appropriate methods when collecting taxes; the Voi sub County Government which will revise tax rates and make the necessary adjustment that will grow the county.. The investigation utilized a descriptive research design. Primary data was gathered using structured questionnaires. The population of this study was managers, owners and employees of selected SME’s in Voi sub County. A stratified sampling method was employed to determine a sample of 626 study participants from the entire population. The data obtained was analyzed quantitatively using descriptive statistics. The presentation methods of statistics used included frequency distribution, tables and bar graphs. The study established a significant correlation between taxation and the growth of the SMEs sector. From the findings of the study it was concluded that high tax rates have a significant effect on the growth of SMEs. The better the tax rates the more the SMEs grow. If the tax rates are high, the profit margins of the firms becomes too small to improve on the scale and size of the business as the SMEs will hardly have enough capital to re-invest. It can be also concluded that better tax policies have a positive effect on the growth of SMEs thus the more favorable the tax policies are, the better the growth trends for SMEs. Types of taxes are concluded to have a significant effect on the growth of SMEs. Since the types of tax are determined by the level of income that the SMEs receive, if better and favorable types of taxes are adopted, then they would boost expansion of SMEs. It is the recommendation of this research report that more friendly tax policies be employed for startup businesses such as tax holiday, or introducing a growth limit with a level that is sufficiently stable to sustain payment of taxes. The study is further of the view that the Tax agency, KRA, need to review its taxation procedures as well as heightened research on firm’s management procedures, the role of taxation policy and distribution of taxes in micro enterprises.