Tax morale, perception of justice, trust in public authorities, tax knowledge, and tax compliance: a study of Indonesian SMEs

This study aims to analyse whether and to what extent tax morality, trust in public authority, perception of justice, and tax knowledge are associated with tax compliance by small and medium enterprises (SMEs). Using a sample of 232 Indonesian SMEs in 2020, we found that SME taxpayers' level of tax compliance is positively associated with their level of tax morality, perception of justice, and trust in public authorities. Our results also show that tax morality has the greatest magnitude in this association, which indicates its role as the main driver of tax compliance. We also found a significant positive association between tax knowledge and tax compliance, confirming the notion that taxpayers' intrinsic motivation should be equipped with adequate tax knowledge. Our results suggest that in improving SMEs' tax compliance, regulators need to consider strengthening the intrinsic motivation as well as enhancing the tax knowledge that promotes a greater understanding of tax obligations.