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Serliaida Fitri, S.M.
Journal of Business Management and Entrepreneurship (2025)
Local governments across Indonesia are digitalising tax administration, introducing electronic filing, electronic payment, and automated transaction recording for restaurant, hotel and parking taxes. Digitalisation is universally presented as reducing burden on business. This study asked whether the international evidence supports that claim for the smallest enterprises, and what the answer implies for Indonesian local tax reform. The method is a structured review of empirical studies published between 2017 and 2024, organised around the compliance cost literature, the tax digitalisation literature, and the technology adoption literature, followed by application to the Indonesian local tax context. The evidence runs in two directions and the divergence is systematic rather than random. Where digitalisation replaces a process the firm already performed, it reduces burden substantially: electronic filing cut time spent on tax affairs by forty per cent in one experimental study. Where digitalisation imposes a new instrument the firm must acquire and operate, the smallest firms adopt least and bear most: in one African case only twenty-nine per cent of the smallest taxpayers used mandated electronic billing machines against fifty-four per cent of larger ones, and the smallest faced an effective tax rate of 8.3 per cent against 5.4 per cent. Compliance costs are regressive to begin with, reaching 3.87 per cent of turnover for unincorporated enterprises in one estimate. The study concludes that the decisive design question is not whether to digitalise but whether the instrument substitutes for or adds to what micro enterprises already do.