Determinants of Micro Small Medium Enterprises (MSMEs) Tax Compliance

Abstract

One of Indonesia's iconic products is teak wood furniture and crafts from Jepara, Central Java. The development of MSMEs operating in this sector is also quite good when seen from the value of exports and domestic turnover. However, this development is different from the level of tax revenue. For the reasons above, this research examines the determinants of tax compliance from this object. A total of 380 MSMEs were involved in this research. Technically, this research uses quantitative methods with Partial Least Squares Structural Equation Modelling (PLS-SEM) analysis. The independent variables used in this research are literacy, tariffs, sanctions, and tax audits, while the dependent variable is tax compliance. The results of direct testing show that tax literacy and tax rates have a positive nexus on tax compliance. Meanwhile, sanctions and tax audits have yet to be proven to affect tax compliance. As the implication of this study, the government could increase tax literacy levels through many channels and review the tariff regularly to enhance MSMEs' tax compliance.

Keywords

• literacy
• tariff
• sanction
• tax audit
• tax compliance