Taxation is a critical instrument for government revenue mobilization, but its implications for the growth and sustainability of small and medium enterprises (SMEs) remain contested. In many developing countries, tax increases are often implemented without sufficient consideration of their effects on SMEs, which represent over 70% of employment and nearly 40% of GDP in sub-Saharan Africa. This study evaluates the impact of tax increases on the sustainability of SMEs in Lusaka Central Business District (CBD), Zambia. Using a mixed-methods approach, data were collected from 120 SME owners and managers through questionnaires, supplemented by interviews with Zambia Revenue Authority (ZRA) officials and business association representatives. Results reveal that 68% of respondents reported reduced profitability following recent tax increases, with 54% citing higher operating costs and 46% reporting decreased reinvestment in business expansion. Furthermore, 41% of SMEs indicated that rising tax obligations forced them to downsize staff, while 27% considered informalization to evade taxation. Despite these challenges, 32% acknowledged that tax compliance enhanced access to credit and formal contracts. The study concludes that while taxation is essential for national revenue, abrupt or poorly designed tax increases undermine SME sustainability, leading to reduced growth potential and increased informality. It recommends targeted tax incentives, simplified compliance processes, and enhanced dialogue between government and SMEs to balance revenue generation with enterprise development.