Understanding tax compliance in indonesian smes: a structural equation modeling approach to tax literacy, knowledge, fairness, power, and trust

Intoductions: This study aims to examine the determinants of tax compliance among small and medium enterprises (SMEs) in Indonesia, focusing on the roles of tax literacy, tax knowledge, perceptions of fairness, power, trust, and trust in government. Given the importance of tax compliance can guide policymakers in designing effective tax policies.Methods: The research was conducted using a quantitative approach, collecting data from 349 SME owners across various islands in Indonesia through convenience sampling. The data were analyzed using Partial Least Squares Structural Equation Modeling (SEM-PLS), allowing for an in-depth examination of the relationships between independent variables and tax compliance.Results: These findings suggest that building trust and employing supportive enforcement strategies are essential for encouraging voluntary compliance among SMEs. Surprisingly, tax literacy, tax knowledge, and perceptions of fairness did not significantly impact compliance, indicating that while these factors may play a role, they are not sufficient drivers of compliance without the presence of trust and authority.Conclutions: Based on these findings, it is recommended that policymakers prioritize strategies that foster trust in government and strengthen relationships between SMEs and tax authorities. Enhanced transparency, communication, and fair enforcement can significantly contribute to improved compliance rates.