The Psychological Costs of Tax Compliance: Insights From Indonesian SME Taxpayers

Abstract Tax compliance costs refer to the costs incurred by taxpayers to comply with tax laws. Prior research suggests that such costs fall disproportionately greater on small-to-medium enterprise (SME) taxpayers than on larger business taxpayers. However, tax compliance may also yield managerial benefits for SME taxpayers, such as improved record-keeping practices. This study investigates how managerial benefits, which perform as a cognitive appraisal strategy, moderate the influence of time costs on tax stressors and psychological costs. Integrating insights from management and psychology, the study proposes that managerial benefits act as a moderator so that taxpayers who incur time costs of tax compliance perceive fewer tax stressors and psychological costs when they identify greater managerial benefits from the tax compliance process compared to those who identify fewer such managerial benefits. To test the hypotheses, the study adopts a mixed-modes approach, examining the extent to which managerial benefits are perceived by SME taxpayers in Indonesia as helping to reduce tax stressors and psychological costs. The findings support the hypotheses, enabling the identification of practical strategies for managing tax compliance costs in a more cognitively healthy manner. This study is among the first to explore the psychological costs of tax compliance by integrating time costs and stressor-related factors.