Voluntary Tax Compliance in Indonesia’s Informal Sector: Roles of Fairness, Trust, and Transparency

Andi Wiwiek Sultan () and Madris Madris
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Andi Wiwiek Sultan: Hasanuddin University
Madris Madris: Hasanuddin University

A chapter in Proceedings of the 10th International Conference on Accounting, Management, and Economics (10th ICAME 2025), 2026, pp 285-296 from Springer

Abstract: Abstract Local tax compliance in Indonesia remains a persistent challenge, particularly among informal sector taxpayers who constitute a significant portion of the economy. Despite various fiscal reforms, voluntary compliance remains low, largely due to perceptions of unfairness, lack of trust in government institutions, and limited transparency in local tax administration. These behavioural and institutional issues are often overlooked in traditional tax enforcement approaches. This study aims to examine the determinants of voluntary local tax compliance among informal sector actors by investigating the influence of three key constructs: perceived fairness, trust in government, and fiscal transparency. Drawing upon the Slippery Slope Framework and Fiscal Exchange Theory, the study highlights the importance of relational and informational dimensions in shaping tax behaviour. Primary data were collected through a structured questionnaire from 312 informal taxpayers in the Special Region of Yogyakarta, including street vendors, micro-service providers, and mobile traders. The data were analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM). The findings reveal that trust in government exerts the strongest influence on compliance behaviour, followed by perceived fairness and fiscal transparency. All three variables demonstrate statistically significant relationships with voluntary tax compliance. These results suggest that improving relational trust and procedural fairness may be more effective than coercive enforcement in informal tax environments. The study offers valuable theoretical insights and practical implications for designing trust-based tax policies in decentralised contexts.

Keywords: Local Tax Compliance; Informal Sector; Trust in Government; Fiscal Transparency; Perceived Fairness (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6239-709-5_21

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DOI: 10.2991/978-94-6239-709-5_21

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