FORMAL TAX COMPLIANCE IN INDONESIA THROUGH ELECTRONIC TAX FILING: A CASE STUDY OF MICRO, SMALL, AND MEDIUM ENTERPRISES (MSMEs)

Abstract

The implementation of electronic tax filing provides convenience to taxpayers in reporting their annual tax returns. The adoption of this policy, especially for micro, small and medium enterprises, is illustrated through the number of MSME taxpayers who report Electronic Annual Tax Return to the number of MSMEs registered as taxpayers. Increases have not followed annual increases in the number of MSME taxpayers who report Annual Tax Return. We investigated the possible correlation between business size and formal tax compliance use: data from the Directorate General of Taxes at the province level in Indonesia for 2014 – 2018. We employed the aggregate business-level Micro, Small, and Medium electronic tax filing data combined with the Base Transceiver Station data at the provincial level. We found that micro and small-scale taxpayers e – filing rate has a positive and significant effect on formal tax compliance. Yet, both of them have a non-linear relationship to formal tax compliance. These results imply that size or business scale MSME taxpayers is associated with formal tax compliance, and greater benefits can be obtained in a province with a high microscale taxpayer's e – filing rate.