Menu
The present study examines the impact of policy government and trusts on motivation and compliance with tax payments in the MSME sector. It applied the Structural Equation Modeling (SEM) method with the SmartPLS program version 3.0 to test seven proposed hypotheses. The results of the study show that the policy government’s influence positively and significantly on motivation to pay tax with a coefficient of 0.246 and p-value = 0.021. Trust in government also has a positive and significant impact on motivation to pay tax with a coefficient of 0.342 and p-value = 0.002. Besides, motivation to pay tax influences significantly compliance with a coefficient of 0.424 and p-value = 0.000. The mediation test shows that motivation partially mediates the influence of government policy and trust on compliance with tax payments with VAF values of 27.8\% and 23.8\% respectively. The study gives additional proof that policy government and trust have an important role in increasing motivation and compliance to pay taxes in the MSME sector. It is suggested that enhancement of socialization policy as well as trust development to increase obedience taxes.
The Government of the Republic of Indonesia targets to collect state taxes amounted to IDR 2,3079 trillion in 2024 [1]. The majority of the Indonesian government’s income comes from tax including over 74% of state revenues, whereas the rest is obtained from other sources such as grants and receipts, not a tax. This matter confirms that tax is the main source of state revenue that is very important for national growth and state financing [2]. The ability of the government to gather high taxes will support various initiatives for purposeful development aiming to increase the well-being of society, economy enhancement economy, decline unemployment, poverty, and inequality, as well as infrastructure development [3]. However, to reach the purpose, the level of tax compliance is crucial. It is because compliance reflects to what extent the taxpayer carries out taxation obligations under applicable rules [4].
Government Regulation Number 55 Year 2022 concerning Regulation Change in the Tax Income Field is one of the purposeful policies to increase tax compliance. Under Article 56, the Resident Taxpayer is required to pay a final income tax of 0.5% covering all income business obtained above the certain threshold limit circulation gross. The policy is expected to give incentives for Micro, Small, and Medium Enterprises (MSME) actors for more obedient in paying taxes. Besides the government policy, taxpayer trust tax in government is also an important factor influencing tax compliance. One of the influencing aspects of taxpayer compliance is government policy [5]. Effective tax policies can encourage taxpayers to obey taxation regulations which in turn increase state revenue from tax [6].
MSMEs are selected as the subject of the study because of their big contribution to the gross domestic product (GDP) and the amount of fieldwork generated. Ministry of Communication and Information Technology reported as of March 31st, 2022, 64.2 million MSMEs were operating in Indonesia accounting for 61% of GDP. The MSME industry employs more than 119.6 million people worldwide. This matter shows how important the role of MSME is in the resurrection of a country’s economy [7]. However, there is still a problem with tax avoidance. National Tax Census (NPC) data shows that MSMEs still perform badly. Besides, the COVID-19 outbreak in 2020 had an impact on MSME in Indonesia. Based on data from the Indonesian Institute of Sciences, 94.69% of business actors experienced a decline in sales, and 679 survey participants relied on income from business actors as their main source of income. The percentage of companies whose revenues fell by more than 75% varied depending on their size, starting from 49.01% ultra-micro businesses, 43.3% micro businesses, 40% small businesses, and 45.83% medium businesses. The government aims to help MSMEs recover the tax sector during the COVID-19 pandemic as outlined in Government Regulation Policy Number 55 Year 2022. Previously subject to Final Income Tax based on Government Regulation Number 23 Year 2018, this regulation changes the law so that MSME taxpayers with gross income receiving IDR 500,000,000 or less in 2022 will no longer be required to pay this tax [6].
Furthermore, the government has issued many initiatives during this pandemic, focusing on MSMEs. Government policies include the National Economic Recovery Program (NERP) which the Indonesian government implements for MSMEs. It consists of working capital grants, interest subsidies and deferrals for MSMEs, online tool training for MSMEs, and the development of digital platforms for business marketing [7]. Minister of Finance Regulation (PMK) Number 44/PMK.03/2020 which amends PMK Number 23/PMK.03/2020 concerning tax relief for taxpayers affected by the coronavirus outbreak issued by the government to ease the financial burden. This final tax income incentive specifically for MSMEs is available from April 2020 to September 2020 at a rate of 0.5% funded by the government. After that, it was revoked and replaced with PMK Number 86/PMK.03/2020 whose final tax income was borne by the government until December 2020 [6].
Even though the government has provided various policies, taxpayer compliance in fulfilling their obligations is still not optimal. As presented in Table 1, taxpayer compliance for North Badung MSMEs from 2018 to 2022 fluctuates and tends to decline. This can be seen from the average number of registered MSME SPT taxpayers of 6,816 taxpayers, on average only 5,247 taxpayers report each year. The average annual taxpayer compliance is 78%.
| Tax Year | MSME Taxpayer SPT Mandatory | Number of MSME Taxpayers Reported |
Percentage
(%) |
| 2018 | 5,717 | 4,960 | 87% |
| 2019 | 6,486 | 5,155 | 79% |
| 2020 | 7,008 | 5,574 | 80% |
| 2021 | 7,401 | 5,330 | 72% |
| 2022 | 7,466 | 5,215 | 70% |
| Average | 6,816 | 5,247 | 78% |
Furthermore, the percentage of taxpayers who report annual tax returns tends to decrease. This pattern shows that government programs that prioritize taxpayer comfort do not have a real influence on tax compliance. A study done by [8] confirms that taxation policy has a small impact on tax compliance among MSMEs.
In addition, taxpayer trust is crucial to increase compliance. Relationships are developed by trust. Relationships are formed when there is trust between those involved. [9] conclude that there is a strong relationship between taxpayer trust and compliance. Meanwhile, contemporary research contradicts the results of [10] that motivation reduces the impact of tax incentives on MSME taxpayer compliance. Apart from government policy, taxpayers’ trust in the government is also an important factor influencing tax compliance. This trust includes the trust that the government will use the paid taxes effectively and transparently for the public interest [11]. Previous studies show that high trust in the government can increase taxpayers’ motivation to comply with their tax obligations.
This study focuses on the impact of government policy and trust on motivation and taxpayer compliance in the MSME sector in North Badung Regency. This district is chosen as the setting of the study because the implementation of Government Regulation Number 55 Year 2022 policy is widely applied to MSMEs in this region. The main objective of this research is to analyze and describe the impact of government policy and trust on motivation and taxpayer compliance, as well as to understand to what extent motivation to pay tax can be a mediator in the relationship between government policy, trust, and compliance with paying taxes.
The present study applied quantitative methods using the SEM approach to test the proposed hypothesis. The setting of the study was in Badung Regency focusing on MSME taxpayers in North Badung. This study was chosen due to its relevance to the Regulation of Government of The Republic of Indonesia Number 55 Year 2022 concerning Adjustments to Regulations in the Income Tax Sector, which had been implemented by several agencies, including the Tax Service Office (KPP) in North Badung. Because this policy was implemented in some MSMEs in the North Badung area, the registered MSMEs were selected to collect stronger information.
The research population consisted of 7,466 registered MSME taxpayers in North Badung Regency. A saturated sampling method was used to determine the sample using the Slovin formula. The minimum number of samples taken was 100 people with an error rate of 10%.
The operational definition of the main variables in this study involved compliance to pay taxes, motivation, government policy, and trust. Compliance to pay taxes was measured through indicators such as submitting tax returns on time, having no tax arrears, never being subject to tax sanctions, and preparing financial reports on time. Motivation was evaluated by honesty, awareness, passion, service from tax officials, and modern tax facilities. Government policy was understood through income tax adjustments, policy duration, participated groups, and policy objectives. Meanwhile, trust was measured through aspects such as the obeyed rules, managed party, the absence of fraud, payment proof, and trust.
The needed data were collected using questionnaires distributed via Google Forms to MSMEs in North Badung.
Then, the obtained data were analyzed by SPSS version 25 software. Data analysis included validity and reliability tests, descriptive analysis, inferential analysis using the Partial Least Squares (PLS) method, and hypothesis testing.
100 respondents participated in the current research in which they were the agents of MSME (Micro, Small, or Medium Enterprise) in North Badung Regency. The profile of those respondents is provided in Table 2.
| Criteria | Categories | Numbers | Percentages |
| Gender | Male | 63 | 63% |
| Female | 37 | 37% | |
| Total | 100 | 100% | |
| Education | Junior High School | 1 | 1% |
| Senior High School | 34 | 34% | |
| Diploma | 12 | 12% | |
| S1 (Bachelor Degree) | 49 | 49% | |
| S2 (Master Degree) | 3 | 3% | |
| S3 (Doctoral Degree) | 1 | 1% | |
| Total | 100 | 100% | |
| Age | 300 Juta | 92 | 92% |
| 300 Juta – 2,5 M | 6 | 6% | |
| 2,5 M | 2 | 2% | |
| Total | 100 | 100% | |
Based on the data provided in the table above, most of the respondents were male agents of MSME. It was proved by the data that there were 63% of male agents and 37% of female agents. Based on the educational criteria, there were 49% graduated with a bachelor’s degree. It was continued by the data showing that 34% of the agents had graduated from senior high school. 12% of them were educated in diploma education. 3% of agents graduated from magister and only 1% graduated from doctoral degree. Based on the outcomes obtained by the researcher, it was found that 92% of respondents perceived the outcomes which were less than 300 million. Meanwhile, there were 6% of agents perceived the outcomes for about 300 million to 2.5 billion. It was also found that there were only 2% of agents perceived the outcomes as more than 2.5 billion.
The outer model was referred to know the correlation between the latent variable with indicators constructing the latent itself. The assessment model was conducted through validity and reliability tests.
Table 3 showed that the loading factor value of each indicator was higher than 0.7 in which it could be stated that the reliability of each indicator had been fulfilled and the value of Average Variance Extracted (AVE) for each construct was more than 0.5. It showed that the indicators used for assessing the construct were accurate. It was also revealed that Composite Reliability (CR) and Cronbach’s Alpha from the indicators were higher than 0.7. It indicated that the indicators were consistent and valid. The results are presented in Table 3.
| Variables | Item Code/Indicators | Loading Factor | AVE | Composite Reliability (CR) | Cronbach’s alpha |
|
Government Policy
(X1) |
X1.1 | 0.721 | 0.677 | 0.913 | 0.881 |
| X1.2 | 0.806 | ||||
| X1.3 | 0.885 | ||||
| X1.4 | 0.848 | ||||
| X1.5 | 0.845 | ||||
|
Trust
(X2) |
X2.1 | 0.754 | 0.650 | 0.881 | 0.821 |
| X2.2 | 0.833 | ||||
| X2.3 | 0.788 | ||||
| X2.4 | 0.847 | ||||
|
Motivation
(Y1) |
Y1.1 | 0.764 | 0.606 | 0.885 | 0.838 |
| Y1.2 | 0.792 | ||||
| Y1.3 | 0.794 | ||||
| Y1.4 | 0.726 | ||||
| Y1.5 | 0.813 | ||||
|
Tax Compliance
(Y2) |
Y2.1 | 0.769 | 0.656 | 0.884 | 0.825 |
| Y2.2 | 0.821 | ||||
| Y2.3 | 0.815 | ||||
| Y2.4 | 0.833 |
After conducting the construct validation test, the discrimination validity test was conducted to find out whether the construct variables had a high correlation or not. It compared the square root of AVE for each construct with the correlation value between the construct and the model [12]. A good discriminant validity was shown by the square root of the AVE for each construct which was greater than the correlation between constructs in the model. Table 4 showed the correlations among latent variables with square roots of average variances extracted (AVEs).
| Construct | X1 | X2 | Y1 | Y2 |
| X1 | 0.823 | |||
| X2 | 0.657 | 0.806 | ||
| Y1 | 0.470 | 0.503 | 0.778 | |
| Y2 | 0.588 | 0.610 | 0.655 | 0.810 |
Table 4 indicated the discriminant validity to the construct of government policy (X1), trust (X2), motivation (Y1), and tax compliance (Y2) had been achieved. It was proved by the root square of AVE in a diagonal column (bolded value) in which it could be seen that all the construct variables gained higher value than the standard value of .05. The values were (X1) = 0,823, (X2) = 0,806, (Y1) = 0,778 and (Y2) = 0,810. Those values were also higher than the correlational value dimensions of the same column.
Based on the analysis, it could be interpreted that the estimated result of the direct influence of government policy on tax compliance was 0.592 with significance at 5%. The estimated result of the indirect influence of government policy on tax compliance was 0.361 which remained a significant influence. To strengthen the result, the mediating role of motivation on the influence of government policy on tax compliance was tested using VAF as shown in Tables 5 and 6.
| Calculation | Result |
|
Indirect Influence = 0,471 x 0,485
X1 Y1 = 0,471; X1 Y2 = 0,485 |
0,228 |
|
Direct Influence = 0,592
X1 Y1 (without motivation as mediated variable) |
0,592 |
| Pengaruh total = (0,228 + 0,592) | 0,820 |
| $$\boldsymbol{VAF}\boldsymbol{=}\frac{\boldsymbol{Indirect}\boldsymbol{\ }\boldsymbol{Variable}}{\boldsymbol{Total}\boldsymbol{\ }\boldsymbol{Influence}}\boldsymbol{=\ }\frac{\boldsymbol{0},\boldsymbol{228}}{\boldsymbol{0},\boldsymbol{820}}$$ |
0,278 |
| Calculation | Results |
|
Indirect Influence = 0,503 x 0,377
X2 Y1 = 0,503; X2 Y2 = 0,377 |
0,190 |
|
Direct Influence = 0,609
X2 Y2 (without motivation as mediated variable) |
0,609 |
| Total Influence = (0,190 + 0,609) | 0,799 |
| $$\boldsymbol{VAF}\boldsymbol{=}\frac{\boldsymbol{Indirect}\boldsymbol{\ }\boldsymbol{Influence}}{\boldsymbol{Total}\boldsymbol{\ }\boldsymbol{Influence}}\boldsymbol{=\ }\frac{\boldsymbol{0},\boldsymbol{190}}{\boldsymbol{0},\boldsymbol{799}}$$ | 0,238 |
Tables 5 and 6 showed that there was a partial mediation in the influence of government policy and trust on tax compliance through motivation. The results showed that part of the influence of government policy and trust on tax compliance occurred directly without involving the motivation variable. The VAF value of 27.8% on the influence of government policy and 23.8% on the influence of trust confirmed that both government policy and trust have a significant direct impact on tax compliance, independent of motivation. Although motivation also played an important mediator in the relationship between the two factors and tax compliance, the complexity of the factors influencing tax compliance behavior was revealed in the results.
In order to answer the research questions of the current research, the hypotheses testing was conducted through Structural Equation Modelling (SE<) with the assistance of the SmartPLS version 3.0 program. The following is a summary of the testing of each hypothesis as presented in Table 7:
| Hypotheses | Testing Results | Status |
| (1) | (2) | (3) |
| (H1): The government policy positively and significantly influences on the motivation of paying tax. | Coefficient 0,246, P Value = 0,021 0,05 | Accepted |
| (H2): The government policy positively and significantly influences on the trust of paying tax. | Coefficient 0,342, P Value = 0,002 0,05 | Accepted |
| (H3): The government policy positively and significantly influences on the tax compliance. | Coefficient 0,226, P Value = 0,022 0,05 | Accepted |
| (H4): Taxpayers’ trust in the government has a positive and significant effect on tax compliance. | Coefficient 0,248, P Value = 0,004 0,05 | Accepted |
| (H5): Motivation has a positive and significant influence on tax compliance. | Coefficient 0,424, P Value = 0,000 0,05 | Accepted |
| (H6): Government policy influences tax compliance mediated by motivation. | VAF = 0,278 or 27,8% | Partial |
| (H7): Trust influences tax compliance mediated by motivation | VAF = 0,238 or 23,8% | Partial |
The influence of government policy on motivation had a coefficient value of 0.246 with a p-value of 0.021 which was smaller than 0.05. It meant that its significant value was perceived at a level of 5%. These results indicated that government policy had a positive and significant influence on the motivation to pay taxes. The purpose of government tax policy was to make taxpayers more interested in paying their taxes. Taxpayers who were motivated to pay their taxes as an obligation to the tax regulation. This finding was relevant to the earlier study conducted by [13]. It was found that tax compliance was greatly influenced by the regulation and taxpayers’ motivation. It was supported by [14] whose study revealed that motivation correlated with tax compliance mediated with the tax policy. It was relevant since it was argued that taxpayers had their reasons in complying with tax policy [15].
The current study revealed that taxpayers’ trusts had a positive and significant effect which was mediated by their motivation itself. It was shown through the coefficient value of 0.342 with p-value of 0.002 which was smaller than 0.05. It had a significant level of 5%. These results also indicated that taxpayers’ trust in the government had a positive and significant impact on taxpayers’ motivation to pay taxes. The results of this study were relevant to the study conducted by [16] revealing that taxpayers were encouraged to make tax payments if they had a high trust in the integrity of the taxation system, the judicial system, the government, and the tax collection process. It was found that the government’s credibility had a positive and statistically significant effect on motivation to pay tax [17]. The influence of government policy on tax compliance had a coefficient value of 0.226 with p-value of 0.022 which was smaller than 0.05. It meant that it was significant at a significance level of 5%. These results indicated that government policy had a positive impact on taxpayer compliance in paying taxes. The fairer the policies were made by the government, particularly regarding taxation, the higher the taxpayer compliance was in paying taxes. These results were in line with government policy Number 55 of 2022 which had a positive and significant effect on MSME taxpayer compliance. Compliance with tax obligations for micro, small, and medium enterprises (MSMEs) was expected to grow along the existence of the law which amended the income tax law. Socialization of this policy increased taxpayer compliance. Based on the previous study conducted by [9]. The provision of tax relief and other incentives has proven effective in increasing taxpayer compliance. The availability of tax incentives influenced taxpayer decisions. The purpose of tax incentives as stated by [10] in which it was to make taxpayers more aware of the importance of tax compliance. Tax incentive programs affected taxpayer compliance. Taxpayer education and compliance could be assisted by government financial incentives [6 ,10 ,18].
The effect of trust on tax compliance had a coefficient value of 0.248 with p-value of 0.004 less than 0.05. It had a significance level of 5%. These results indicated that the higher the taxpayer’s trust in the government, the higher their compliance in paying taxes. Taxpayers’ trust in the government was decreased due to the many anomalies and tax abuses carried out by dishonest civil servants. This affected taxpayers’ tax compliance. The willingness of the public to pay taxes was increased along with their level of trust in the government. These results were in line with the statement argued by [7] who found that the level of trust had a large positive impact on taxpayers’ compliance in filing taxes. When deciding whether or not to comply with their tax obligations, taxpayers do it based on their opinions or trusts towards the government and the legal system. Taxpayers’ compliance was greatly influenced by their trusts [19]. Briefly, the current study evidenced that there was a positive and significant influence contributed by the government, taxpayers’ trusts, towards taxpayers’ motivation and tax compliance.
Based on the research results, several significant conclusions can be drawn regarding motivation and compliance to pay taxes among taxpayers, especially in the context of MSMEs. Firstly, it is proven that government policy has a significant positive impact on taxpayers’ motivation to pay taxes. The existence of policies to increase motivation to pay taxes can strengthen taxpayer compliance with tax regulations. Furthermore, taxpayers’ trust in the government also has a significant positive impact on their motivation to pay taxes. The higher the level of trust, the higher the taxpayer’s motivation to comply with paying taxes. Then, government policy is also proven to have a positive impact on taxpayer compliance in paying taxes, especially if the policy is seen as fair by taxpayers. It shows the importance of justice in making tax policies to increase taxpayer compliance. Apart from that, high trust also has a positive and significant effect on tax compliance. The higher the taxpayer’s trust in the government, the higher their level of compliance in paying taxes. Furthermore, motivation is also proven to act as a partial mediating variable in the relationship between government policy and compliance with tax payment, as well as between trust in the government and compliance with tax payment. Although low motivation can be an obstacle, fair policies, and a high level of trust can overcome these obstacles and directly influence taxpayer compliance in paying taxes. Thus, this study makes an important contribution to the understanding of the factors that influence taxpayer motivation and compliance, as well as the implications for tax policy, especially in supporting the growth of MSMEs.
Theoretical and practical contributions to the understanding and improvement of tax compliance, especially in the MSME sector, are vital in building taxpayer trust and motivation. Theoretically, the emphasis on voluntary compliance is the main basis for the tax system which the policies build trust and minimize the tax burden for MSMEs. Practically, providing tax incentives and more intensive socialization of tax policies by the Tax Office are strategic steps. In the long term, increasing taxpayer confidence through anti-corruption measures is also an integral part of the success of tax policy.
Thus, the suggestions are made to intensify the communicative approach in socializing tax policies to taxpayers. Efforts are needed to clarify the benefits of taxes and their contribution to societal development. Apart from that, the provision of clear and easy guidance regarding tax obligations and incentives is needed by taxpayers, especially for MSMEs. Besides, adopting technology and digital platforms to provide information more effectively and efficiently to taxpayers can also increase transparency and trust in the tax system.
The present study is limited in terms of research variables. In this research, taxpayer motivation and compliance only use two variables, namely government policy and trust. Therefore, it is recommended to consider adding other variables that can enrich the analysis, such as economic, social, or psychological factors that can also influence taxpayer motivation and compliance more holistically for future study.
