Model for Forecasting Tax Compliance Behaviors for Small and Medium Enterprises Owners Based on Owning Tax Knowledge

Abstract

Objective: This article aims to develop a conceptual framework of tax knowledge that can help analyze and discuss how it affects tax compliance and proposes a predictive model to better understand taxpayer behavior and compliance levels by seeking to assess the importance of different types of tax knowledge. Method: This study follows the interpretive paradigm and utilizes a qualitative approach to gain a deeper understanding of individuals' perceptions and attitudes in different contexts. The research data was gathered by reviewing pertinent literature and data from previous studies found in academic databases like Scopus, Taylor and Francis, and Emerald. Keywords such as “taxpayer knowledge or “tax knowledge” and related concepts were used in the search. The systematic literature review concentrated on tax legal, procedural, and general knowledge to formulate a proposed tax literacy framework. Results: The proposed tax knowledge framework consists of three components: taxpayers' knowledge level, awareness, and attitude toward taxes. These three components correspond to three types of knowledge: general tax knowledge, tax law knowledge, and tax procedure knowledge. This framework can be useful in (i) assessing the significance of each type of knowledge, which, when combined with cognitive ability, can signify a taxpayer's intention to follow tax regulations and (ii) explaining taxpayer behavior, which can indicate compliance or non-compliance based on their attitudes towards taxes and different types of knowledge. Moreover, this framework can be utilized as a basis for developing scales that measure tax knowledge and compliance behavior. This can help state agencies create policies that can reduce tax violations and improve compliance overall. Conclusions: According to the analysis, tax knowledge is an important factor in determining the tax compliance behavior of SMEs, but it is not the only factor. The model suggests that there are two key aspects to consider. Firstly, tax compliance is influenced by the level of understanding, awareness, and attitudes. Secondly, positive attitudes are more crucial than tax awareness when it comes to taxpayers' ability to comply with tax regulations, while negative attitudes are more influential than tax knowledge in terms of taxpayers' likelihood to engage in non-compliance.