Abstract:
It has been suggested that the introduction of presumptive income tax regimes for small and
medium-sized enterprises (SMEs) can help to reduce the tax compliance costs that these
businesses face. Little evidence, however, is available to help us to evaluate whether this is
indeed the case. This article discusses how a presumptive tax regime may impact upon the tax
compliance costs of SMEs operated by individuals (individual SMEs) in Indonesia in 2019 and
suggests that the use of such regimes can have a beneficial effect on such businesses. It
considers all components of tax compliance costs, including explicit, implicit, and
psychological costs. By applying a mixed-modes research method, two main findings are
highlighted. First, the presumptive tax significantly reduces explicit costs, although it does not
appear to influence the implicit and psychological costs incurred by individual SMEs in
Indonesia. Secondly, the combination of explicit and implicit costs indirectly affects the
psychological costs through the existence of tax disputes and tax stressors. Not only do the
results provide us with a new understanding of aspects of tax compliance costs, they show how
the components of the costs interact with each other. While the empirical application is countryspecific,
the conceptual framework developed in the study does not exclusively relate to
taxpayers in Indonesia and can be applied to other countries or in other public regulation
studies.
