The influence of taxpayer awareness, tax penalties, and understanding of taxation on the compliance of small and medium-sized taxpayers

Abstract

Purpose: This study aims to assess the level of awareness, information, and understanding of Micro, Small, and Medium Enterprises (MSMEs) regarding mandatory tax compliance in the City of Jakarta. Although MSMEs account for 99.9% of all business actors and contribute 61.7% to the national GDP, their tax contribution remains relatively low. Therefore, this research intends to identify key factors that influence MSME taxpayer compliance.

Methods: This research adopts a quantitative approach involving 100 individual taxpayers who own MSMEs operating in the Jakarta City area. The respondents were selected using a purposive sampling technique to ensure they met specific criteria relevant to the study. Data were analyzed using SPSS 25 to examine the relationships between taxpayer awareness, tax sanctions, and understanding of tax compliance.

Findings: The results reveal that taxpayer awareness, tax sanctions, and tax understanding each have a significant positive effect on taxpayer compliance among MSMEs in Jakarta. These findings suggest that improving knowledge and enforcement mechanisms can enhance compliance behavior among MSME taxpayers.

Practical implications: This study recommends that tax authorities adopt a three-pronged approach to enhance MSME tax compliance: implementing targeted educational programs to deepen understanding of tax benefits, enforcing consistent and transparent tax sanctions to strengthen deterrence, and leveraging digital platforms to simplify tax information and procedures for MSMEs.