Assessing the Effectiveness of Law Enforcement on Improving Tax Compliance in Indonesia: An Empirical Investigation

Figures & data

Table 1. Number of Audits and Audit Coverage Ratio for FY 2016–18

Source: Calculated from DGT’s internal data.

FIGURE 1 DGT’s Strategy Map

Source: DGT (2019).

Table 2. Hypotheses under Study

Table 3. Number of Tax Offices in Study

FIGURE 2 Conceptual Framework under Review

Note: The rectangles indicate the observed variables under review (that is, KPIs; 19 in total). SP represents the KPIs from the stakeholder perspective (two KPIs), CP represents the KPIs from the customer perspective (two KPIs), IP represents the KPIs from the internal process perspective (12 KPIs) and LG represents the KPIs from the learning and growth perspective (three KPIs). In this intuitive conceptual model, 64 causal relationships were analysed simultaneously. Note, however, that the emphasis of this study lies in the relationships between KPIs in the internal process and customer perspectives.

Table 4. KPI Scores (%) (N = 352 tax offices)

Note: In total, there are 12 KPIs in the internal business process perspective. Three KPIs represent service and public relation activities (numbers 5, 6 and 7), three KPIs represent monitoring and supervision activities (nos 8, 9 and 10) and four KPIs belongs to law enforcement activities (numbers 11, 12, 13 and 14). Two other KPIs are supporting activities.

Table 5. Variation in Causal Relationships in the DGT’s Strategy Map (N = 352 tax offices)

Note: This table shows that, in total, there are 64 causal relationships among KPIs in the DGT strategy map. The results reveal that, even though the majority of the relationships are positive (63%), only 19% are positive and statistically significant at p < 0.05.

Table 6. Causal Relationships between the DGT’s Internal Business Process and Tax Compliance

Note: This table describes the causal relationship between KPIs within the DGT’s three internal business processes and tax compliance KPIs. In general, KPIs in service and public relations business processes have positive relationships with tax compliance, with four out of six (67%) relationships analysed showing statistically significant and positive coefficients. Meanwhile, for law enforcement KPIs, three out of eight relationships have statistically significant and positive coefficients.

Table 7. Summary of Standardised Direct Effects between Law Enforcement Activities and the Level of Tax Compliance Arising from Hypotheses H1–H8

Note: *** = p ≤ 0.01; ** = p ≤ 0.05; * = p ≤ 0.10.

Table 8. Summary of Standardised Direct Effects between Law Enforcement Activities and the Level of Tax Compliance by Group of Five Main Islands

Note: (i) Java: 202 tax offices; (ii) Sumatra: 71 tax offices; (iii) Sulawesi: 26 tax offices; (iv) Kalimantan: 27 tax offices; (v) Bali, Nusa Tenggara, Papua, Maluku: 26 tax offices.

Table 9. Comparison of Standardised Direct Effects between Law Enforcement Activities and the Level of Tax Compliance between Two Groups of Tax Offices

Note: *** = p ≤ 0.01; ** = p ≤ 0.05; * = p ≤ 0.10. Group A represents the group of tax offices having taxpayers being criminally investigated. Group B represents the group of tax offices not having taxpayers being criminally investigated.

FIGURE 3 Comparison of Standardised Direct Effects of ACR on Level of Compliance between Two Groups of Tax Offices

Note: *** = p ≤ 0.01. Group A represents a group of tax offices having taxpayers being criminally investigated. Group B represents a group of tax offices not having taxpayers being criminally investigated.