Exploring the Influence of Turnover Tax Compliance on Financial Performance of Small and Medium Enterprises (SMES): A Case Study of Solwezi Central Business District, Zambia

Abstract

This study explores the influence of Turnover Tax compliance on the financial performance of Small and Medium Enterprises (SMEs) in Solwezi Central Business District (CBD), Zambia. Taxation plays a crucial role in a country’s economy, as revenues from sources such as turnover tax and value-added tax support public service delivery and promote economic growth. Despite this, Zambia continues to face challenges in achieving its full revenue potential. SMEs, in particular, represent a significant yet underutilized source of tax revenue, posing an obstacle to sustainable public financing and national development. Data were collected through structured interviews with 20 SMEs operating in the retail sector. Findings reveal that while many SMEs are registered for turnover tax, there are persistent challenges with timely filing and payment compliance. Contributing factors include limited understanding of tax responsibilities, inefficiencies in digital platforms, and a lack of structured taxpayer education. The study further identifies that the influences of tax compliance vary across enterprises. Some SMEs experienced reduced profitability and constrained growth, particularly those with seasonal or low income. The study concludes that improving tax compliance and financial performance among SMEs requires a combination of administrative reform, digital innovation, and capacity-building initiatives tailored to the SME context. Aligning tax policy more closely with the practical needs of SMEs is essential. The government should consider introducing greater tax incentives and exemptions, reducing compliance costs, curbing corruption, and improving the accountability and accessibility of the Zambia Revenue Authority (ZRA) services.