An Evaluation of the Challenges of Turnover Tax Reform in Zambia: A Case of Micro and Small Enterprises in Trading Industry in Lusaka, Zambia

This study evaluated the Turnover tax reform in Zambia and the challenges it imposes on Micro and small enterprises (MSEs) in trading industry specifically those operating in retail and wholesale sector in Lusaka, Zambia. In 2025, Zambia implemented notable tax reform changes to the Turnover tax system by raising Turnover tax threshold from K800,000 to K5 million with the aim of simplifying tax compliance for Micro and small enterprises (MSEs). The increase in Turnover tax threshold is notably a policy shift directly affecting thousands of Micro and small businesses across multiple industries in Zambia. Guided by three objectives, the study evaluated the challenges of Turnover tax reform, specifically the financial effects, Secondly, the study investigated the level of awareness and utilization of tax incentives among Micro and small enterprises, and thirdly, the study evaluated the extent to which Zambia’s Turnover tax system align with principles of a good tax system. Theoretically, the study is anchored on two theories, “The Ability-to-Pay Theory by Adam Smith and Laffer Curve Theory by Laffer†, these theories provided theoretical foundation for evaluating tax fairness, equity, economic efficiency and simplicity. A mixed-methods research design was adopted, integrating quantitative and qualitative approaches to strengthen the credibility and robustness of the findings. Quantitative data was collected from 175 Micro and small enterprises operating in major commercial trading hubs in Lusaka’s Central Business District, Kamwala, Carousel, Woodlands and Industrial centers. Furthermore, quantitative data was collected from Zambia Revenue Authority through a structured questionnaire administered to seven tax officials. Qualitative data was collected through semi-structured interviews with 15 Micro and small enterprises owners. Data analysis employed regression analysis, correlation analysis, descriptive statistics, and thematic analysis to integrate quantitative and qualitative findings. The study established three major challenges of Turnover tax reform among Micro and small enterprises. A more concerning finding revealed 65% of respondents reported paying turnover tax in loss-making periods, while 22% of businesses relied on short-term borrowing to pay tax liabilities. Secondly, across MSEs profit decline of 5% was observed, this decline in profitability represents a material economic consequence for Micro and Small Enterprises (MSEs), especially those operating on narrow profit margins and limited financial reserves. The third challenge experienced is increased tax liabilities and penalties, tax burden emerged a prevalent challenge faced by MSEs, findings indicated 83% of respondents perceived the tax burden as heavy. Regression analysis confirmed statistically significant association between turnover tax threshold adjustment, increase in tax rate and profitability decline, the models confirmed turnover tax threshold, turnover tax rate, and tax compliance collectively have a statistically significant relationship with decline in profitability. The first model is significant (F = 7.016, p