The Impact of Perceptions of Corruption and Trust in Government on Indonesian Micro, Small and Medium Enterprises Compliance with Tax Laws

Abstract

Listen

Translate article

Indonesia is a country with a relatively large level of MSMEs development. The Micro, Small, and Medium Enterprises (MSMEs) sector itself has a crucial role and is the main pillar of a country’s progress. Ironically, this rapid development is not followed by the compliance of MSMEs taxpayer. Based on the survey results by the Directorate General of Taxes of the Indonesian Ministry of Finance in 2019, the contribution of MSMEs final income tax was only IDR 7.5 trillion or only around 1.1% of the total income tax revenue in the same year 711.2 trillion. Thus, it is important to explore the main factors causing (non)compliance of MSMEs in paying their taxes. This research examined the effect of perceptions of corruption and trust in the government on MSMEs’ taxpayer compliance with perceived justice as a moderating variable. This study used a questionnaire survey design with hypothesis testing. The samples included MSMEs actors who had been operating for more than one year and MSMEs actors who already had a taxpayer identification number. The results uncovered that the perceptions of corruption negatively affected MSMEs’ taxpayer compliance, while trust in the government positively affected MSMEs’ taxpayer compliance. The perceived justice could not moderate the effect of perceptions of corruption on MSMEs’ taxpayer compliance. However, the perceived justice strengthened the influence of trust in the government on MSMEs’ taxpayer compliance. This study’s results are additional discussion toward theory and literature related to taxpayer compliance. Specifically, this study proposes a tax compliance model by testing perceived justice as a moderation variable.