Responses of Small Business Communities to Core Tax Systems: The Future Implications for Taxpayer Compliance in Indonesia

Abstract

This paper aims to analyze the effect of the core tax system and tax penalties on taxpayer compliance. This study was conducted using experimental testing with participants being individual taxpayers who own businesses (MSMEs) in Surabaya. An experiment is a research design to investigate an event by engineering certain circumstances and conditions through a process and then observing the results of the engineering. The results of the analysis show that the core tax system has a positive effect on voluntary compliance, while tax penalties tend to increase forced compliance. Both variables have complementary roles in encouraging increased tax compliance. This study is limited to MSME taxpayers in Surabaya, so the findings may not be generalized to all taxpayer groups in Indonesia. Future research could expand the scope to other regions, different types of taxpayers, or compare across countries. The findings provide practical insights for the Directorate General of Taxes in Indonesia. Improving the ease of use of the core tax system and applying fair but firm penalties can enhance overall compliance and reduce administrative burden. Higher taxpayer compliance contributes to increased state revenue, which supports public services, reduces inequality, and strengthens sustainable development in Indonesia. The core tax system is a form of digital transformation by the Directorate General of Taxes that aims to improve the efficiency, transparency, and convenience of tax services. On the other hand, tax penalties are used as a law enforcement tool that provides a deterrent effect.