Does Tax Simplification Motivate Small Businesses to be More Compliant? Evidence from a Regression Discontinuity in Indonesia

Abstract

This research investigates how the tax simplification program in Indonesia affects tax compliance among small businesses. This study employs a regression discontinuity design and examines various parameters of tax compliance. The results indicate that tax simplification does not significantly influence tax payment behaviour. However, it does have a positive effect on overall tax compliance, as evidenced by increased reporting frequency and decreased penalties. Investigation of the heterogeneous treatment impact reveals a considerable variation in treatment effects across geographic areas and internet accessibility. Taxpayers located in areas with decent internet connectivity and proximity to the tax office appear to benefit more from the program's implementation.