Business administration practices and their contribution to tax compliance among MSMEs: A qualitative study

Micro, Small, and Medium Enterprises (MSMEs) contribute more than 60% of Indonesia's gross domestic product, yet their tax compliance remains low: in 2024, only 27.96% of non-employee individual taxpayers, the group that includes most MSME owners, filed their annual income tax return. This study aims to identify the forms of business administration practices adopted by MSME owners, analyze their contribution to tax compliance, and explore the inhibiting and supporting factors involved. A qualitative case study bounded by place (Jakarta Pusat), time (interviews from March to June 2026), and activity (record-keeping and the fulfilment of tax obligations for tax year 2025) was employed, using semi-structured in-depth interviews with ten purposively selected MSME informants. The analysis rests on interview data only. Findings reveal three patterns of administrative practice: informal, semi-formal, and digital record-keeping, each associated with a different level of compliance capability according to the informants' accounts. Informants applying digital recording systems described greater consistency in tax reporting than those relying on informal methods. Key barriers include limited basic accounting literacy and heavy operational workloads, while government assistance programs and access to formal financing serve as effective motivational drivers. This study concludes that MSME tax compliance appears to be shaped by compliance capability, which is determined by the quality of internal business administration practices. Strengthening foundational administrative capacities is recommended as a prerequisite to digital tax transformation policies.