Taxing Micro, Small and Medium Enterprises in Yogyakarta: Regulation and Compliance

Siti Rahma Novikasari,Duc Quang Ly,Kerry Gershaneck

doi:10.20961/bestuur.v9i1.49184

Siti Rahma Novikasari, Duc Quang Ly + Show 1 more

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https://doi.org/10.20961/bestuur.v9i1.49184

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Journal: BESTUUR	Publication Date: Aug 12, 2021
Citations: 1	License type: CC BY 4.0

Affiliation: Islamic University of Indonesia

Abstract

Government Regulation No. 46/2013 has not been optimal in providing legal compliance on taxation for Micro, Small, and Medium Enterprises (MSMEs), especially in Yogyakarta. This policy was evaluated and amended with Government Regulation No. 23/2018. The amendment in tax policy for MSME actors was this research background to examine: First, how does the final income tax policy impact MSME taxpayers' compliance in Yogyakarta? Second, what are the legal compliance constraints of MSME taxpayers? The method used in this research was a juridical empirical, supported with the statute and conceptual approach. The results showed that the amendment in the final income tax tariff policy from 1% to 0.5%, as well as provide legal certainty of the timeframe of taxation had a positive impact on increasing taxpayer compliance. There was an increase in the number of taxpayers to 41,000 in 2019, or an increase of 15.5% compared to the number of taxpayers in 2017. However, tariff reduction has not been the answer to taxpayer non-compliance, the Regional Office of the Directorate General of Taxes of the Special Region of Yogyakarta still found tax avoidance. Tax compliance constraints were also caused by taxpayers' distrust of the government, poor tax morale, and tax knowledge. The government needs to conduct a cooperative compliance approach in taxation policies based on trust and dialogue between taxpayers and the government to improve MSME taxpayer compliance.Keywords: Tax Compliance; Final Income Tax Regulation; Micro; Small; Medium Enterprises.

Highlights

The budgetary function is the main function of the tax, which is used to finance government activities (Castro & Scartascini, 2015)
This study aims to analyze the relationship between the amendments of the final income tax policy and the legal compliance of MSMEs taxpayers
This study shows that the reduction of the final income tax tariff from 1% to 0.5% and the existence of legal certainty regarding the taxation time frame implies a positive impact on taxpayer compliance

Summary

Introduction

The budgetary function is the main function of the tax, which is used to finance government activities (Castro & Scartascini, 2015). More than 80% of state revenue comes from the taxation sector. It proves that taxes have an important role in the running of the government. The legal definition of income as a tax object is any additional economic capability received or obtained by the taxpayer, whether originating from Indonesia or outside Indonesia, which can be used for consumption or to increase the wealth of the taxpayer concerned, under whatever name and form. The types of income tax objects have been regulated in Article 4 of Law No 7 of 1983 concerning Income Tax as amended several times, most recently by Law No 11 of 2020 (hereinafter referred to as the Income Tax Law)

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