POTENTIAL FACTORS MOTIVATING TAX COMPLIANCE AMONG SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

Abstract

Tax compliance is a compliance of taxpayers with the tax law of the country in terms of declaring their income, filing a return and paying any taxes that are due on time. Tax compliance is essential for the government and tax authorities to achieve the revenue collection target as taxes are the main sources of income to the country. The Inland Revenue Board in Malaysia (IRBM) has recorded 17% increase of tax collection in 2021 compared to 2020. In 2021, more than RM140 billion was collected from three million people and more than 400,000 businesses. Small and medium-sized enterprises (SMEs) play an important role since they contribute a significant source of government’s tax revenue to ensure sustainable economic growth and development. Recognising SMEs played a crucial role in contributing a large portion of income to the government, this study aimed to identify factors motivating tax compliance among SMEs. The attitude of taxpayers towards tax is influenced by the specific knowledge on taxation, in which the taxpayers have a good understanding of the basic tax system and laws. Thus, tax knowledge among SMEs increases tax compliance as they are more responsible to meet their tax duties. This study also found that high tax morale influencing tax compliance of SMEs. They believe that paying taxes is a sense of moral obligation for the benefits of society. Meanwhile, tax penalties have a significant impact on tax compliance by promoting a positive attitude towards the tax regulations system. In other aspects, tax simplicity has reduced the complexity of the tax system and led to increase of the tax compliance among SMEs. The findings have shown possible strategies for tax authorities to achieve higher level of tax compliance among SMEs towards attaining targeted tax collection for the country.