Effect of Turnover Tax on Small and Medium Enterprises’ (SMEs) Growth in the Clothing Retail Industry: A Case Study of Lusaka

Abstract

Taxation plays an important role in the development of every economy as well as the growth of Small and Medium Enterprises (SMEs). The purpose of the study was to evaluate the effect of turnover tax on the growth of small and medium enterprises in Lusaka and the specific objectives were; to establish the significant effect of tax incentives on SME growth in the Zambian retail sector; to find out whether the Zambian tax system espouses the basic principles of “efficiency” and “equity” in the retail clothing industry; and to assess the effect of tax policies on SMEs business profitability in the retail clothing industry.The approach adopted was mixed method. This study was based on a survey of 72 selected clothing retail stores out of the available 4433 retail businesses in Lusaka.The sampling technique applied in this research wasjudgmental sampling. The survey was administered using 72 questionnaires which had a 100% return rate. Data was analyzed through descriptive statistics, correlation and regression analysis and findings were presented in terms of frequencies and percentage analysis.The results demonstrated that tax incentives stimulate the growth of the business. It was also ascertainedthat ‘equity and fairness’ does not seriously affect the growth sort after by SMEs in the clothing retail industry.Additionally, this studyestablished that turnover tax significantly affects the profitability of SMEs in the clothing retail industry negatively. The study recommends that government should implement innovative incentives and enhancing policies that could help businesses deal and cope with uncertainties and different macroeconomic situations. It was also suggested that policy makers shouldsimplify the taxadministration systems to make it easier for taxpayers to pay taxes willingly and easily. Furthermore, the government through the relevant line agencies should provide an enabling environment and social services that support business profitability. This paper, therefore, is a strong line of policy advocacy on the imperative need for government through the Ministry of Finance and National Planning along with its line agencies to entrench tax policy incentives (not only in respect to the subject matter subsector of this study)which do not only incentivize the SMEs ecosystem but equally give growth, sustainability and profitability of these entities for the overall socio-economic development of the nation. This is the surest way of guaranteeing job creation, poverty and inequality reductions amongst the masses of Zambia, who are lamentably wallowing in the paradox of abject poverty in the land of plenty.