A study on the tax obligations and perceived tax compliance of small and medium enterprises (smes) in Gia Lam, Ha Noi

Vietnam Journal 
of Agricultural 
Sciences 
ISSN 2588-1299 VJAS 2020; 3(3): 726-731 
https://doi.org/10.31817/vjas.2020.3.3.06 
726 Vietnam Journal of Agricultural Sciences 
Received: June 12, 2020 
Accepted: October 30, 2020 
Correspondence to 
nguyenhuong@vnua.edu.vn 
A Study on the Tax Obligations and 
Perceived Tax Compliance of Small and 
Medium Enterprises (SMES) in Gia Lam, 
Hanoi 
Nguyen Thi Huong, Dao Thi Hoang Anh, Dang Thi Hai Yen, Bui 
Thi Hong Nhung & Le Thi Thanh Hao 
Faculty of Accounting and Business Management, Vietnam National University of 
Agriculture, Hanoi 131000, Vietnam 
Abstract 
This study was conducted to examine general information of the tax 
obligations and perceived tax compliance of small and medium 
enterprises (SMEs) in Gia Lam - Hanoi. In this study, 150 SMEs were 
selected randomly and analyzed using descriptive analyses and 
principal component analysis (PCA). The results showed that most 
SMEs owners were men who had an average age of 39 and an average 
management experience of 7 years. The average number of laborers 
was 15 people and the total assets and revenue were 72.22 and 103.84 
billion VND, respectively. SMEs reported having difficulties 
registering, declaring, and paying taxes, and nearly half of them had 
submitted taxes lately. Moreover, the perceived tax compliance of the 
enterprises could be divided into five key factors, namely quality of 
tax services, social norms, technology application, enterprise 
responsibility, and quality of tax officials. Based on these results, 
recommendations are given to the tax authorities in order to improve 
some tax regulations and policies. 
Keywords 
Tax compliance, tax obligations, Principal Component Analysis 
(PCA) 
Introduction 
In most countries, taxes are mandatory for all economic 
organizations and are also the largest proportion of revenue in 
national budgets. Tax compliance remains a top concern for most 
governments around the world. The situation of tax non-compliance 
has caused negative impacts, leading to losses of budget revenue, and 
inequality in competition and business activities. According to a 
recent report, Vietnam has nearly 517,900 existing enterprises, of 
which small and medium enterprises (SMEs) account for about 98% 
(General Statistics Office, 2018). SMEs have been the primary driver 
Nguyen Thi Huong et al. (2020) 
https://vjas.vnua.edu.vn/ 727 
of socio-economic growth of the country as they 
create up to 40% of the GDP, and create more 
than one-million new jobs every year (General 
Statistics Office, 2018). The enterprises 
contribute approximately 39.55% of the total 
state budget revenue (General Statistics Office, 
2019). However, outstanding tax debts have 
grown recently. For example, the tax debts of 
enterprises were 82,972 billion VND in 2019, an 
increase of 8.7% compared to 2018, in which the 
tax debt of SMEs is the primary concern (General 
Department of Taxation, 2019). Managing tax 
compliance is a major challenge for governments 
and tax authorities in developing countries, 
including Vietnam. Many studies have shown 
that in developing countries, the actual tax 
revenue is less than half of the potential taxes that 
should contribute to the state budget (Gandhi et 
al., 1987). Therefore, governments and tax 
authorities need to consider the factors affecting 
tax compliance to ensure the transparency, 
fairness, and efficiency of the tax system. 
Up to 2019, Gia Lam had 4,664 enterprises, 
of which there were 2,156 SMEs, accounting for 
46.2% of the total number of enterprises. The 
SMEs in Gia Lam can be classified as commercial 
enterprises (53.3%), manufacturing enterprises 
(16.6%), service enterprises (13.3%), and general 
enterprises (16.8%) (combined production and 
trade). SMEs contribute more than 30% of the 
total budget revenue, create more jobs, and ensure 
the social security of the district (Le Thi Minh 
Chau & Hoang Thi Mai Anh, 2019). However, 
615 SMEs, which account for about 28.5% of the 
total number of SMEs, had violations in tax 
obligations (Hanoi Tax Department, 2019). This 
research aimed to figure out the situation of tax 
liability performance and awareness of tax 
obligations and tax compliance of SMEs in Gia 
Lam district - Hanoi and make some 
recommendations to improve the regulations and 
policies of the tax system. 
Methodology 
Data collection 
The research was carried out in Gia Lam, 
which is a suburban district located in the 
easternmost region of Hanoi, Vietnam. The 
district is divided into 20 communities and two 
towns with an area of 108.44 km². As of 2019, 
the population was 277,600 people (General 
Statistics Office, 2019). Recently, the 
urbanization process has grown rapidly in the 
district with the emergence of a series of new 
urban areas, such as Dang Xa urban area and 
Vinhomes Ocean Park urban area. 
The questio ... s. Principal 
factor analysis is a method used in multivariate 
analysis to find and retain key factors. The two 
main steps to perform a PCA were completed as 
follows: 
Step 1: The correlation matrix, specific 
vectors, and individual values (initial 
transmission factor) were calculated. 
Step 2: The VARIMAX rotation was used to 
clarify and explain the factor groups better. 
The transmission coefficient indicates how a 
variable contributes to a major factor. All 
A study on the tax obligations and perceived tax compliance of small and medium enterprises 
728 Vietnam Journal of Agricultural Sciences 
components that had a specific value ≥ 1 were 
retained (Hair et al., 2010). In order to ensure 
significant results of the analysis, a sample size of 
≥ 100 and loading coefficients with values ≥ 0.5 
were selected (Hair et al., 2010). All analyses were 
carried out using STATA for Windows (v.13.1). 
Results and Discussion 
Socio-economic characteristics of SMEs 
Most SMEs owners were male and all of 
them had obtained at least a bachelor’s degree 
from a college or university. The details of the 
socio-economic characteristics of the selected 
SMEs are shown in Table 1. 
The SMEs owners had an average age of 
39.2, of which the youngest owner was 33. These 
values were relatively consistent with the 
average age of business owners from 30-50 years 
old (Tran Thi Xuyen, 2020). The average 
experience of management was about 7 years, 
including some SMEs that had just been 
established. 
The average total assets and average revenue 
of these SMEs were 72.22 and 103.84 billion 
VND, respectively. The average number of 
laborers in the SMEs was around 15 people. Such 
SMEs could face difficulties in expanding their 
businesses due to a lack of capital, human 
resources, and access to credit. 
Fulfilling tax obligations of SMEs 
SMEs in Gia Lam district have to fulfill 
several tax obligations: corporate income tax, 
Table 1. Socio-economic characteristics of SMEs 
Category Unit Mean Std. Dev. Max Min 
Age of owner Year 39.20 4.52 47.00 33.00 
Owner’s 
experience 
Year 6.90 3.47 12.00 1.00 
No. laborers People 14.96 20.3 95.00 3.00 
Total assets Million VND 72.22 32.85 118.96 11.00 
Revenue in 2018 Million VND 103.84 95.62 310.00 10.00 
 Table 2. Tax obligations of SMEs 
Categories Respondents (%) 
Tax registration process 
Complicated and overlapped 36.67 
Accessable 63.33 
Tax declaration method 
Stable 35.33 
Changed 64.67 
Complex tax 
Corporate income tax and VAT 75.33 
Others 24.67 
VAT refund 
Sometimes 25.33 
Never 74.67 
Tax delayed 
Sometimes 49.33 
Never 50.67 
Source of tax information 
Internet 46.00 
Tax authorities 54.00 
Nguyen Thi Huong et al. (2020) 
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excise tax, value-added tax, special consumption 
tax, and import tax. The enterprises reported 
often having difficulty in all 3 stages of 
registration, declaration, and payment of taxes. 
Table 2 shows the details of the tax obligations 
of SMEs in Gia Lam. 
Among the total respondents, 36.67% said 
that the tax registration process still had many 
complicated and overlapping procedures, which 
made the process difficult for them to complete. 
Meanwhile, about 64.67% of the enterprises said 
that the tax declaration method sometimes 
changed, they constantly had to update software, 
and the web portals of the General Department of 
Taxation were inaccessible. The enterprises were 
also not fully instructed when there was a change 
in tax law. When fulfilling tax obligations, 
75.33% of the enterprises said that corporate 
income tax and value-added tax were two 
complex and difficult taxes to implement and 
they needed support from the tax authorities. For 
value-added tax, 25.33% of the enterprises were 
entitled to tax refunds, but they all assessed the 
complicated tax refund procedures and tax 
officials as causing difficulties for them. Almost 
half (49.33%) of the enterprises have sometimes 
delayed paying taxes. The main reason given by 
enterprises is that they were in a difficult 
business period. In addition, a number of 
enterprises said that their accounting staff 
delayed settlement leading to delayed tax 
payment. The majority of the respondents had 
quick access to changes in tax regulations, but 
46% of them rated that the source of information 
was accessed through the internet. Tax services 
and tax authorities need to play a leading role in 
providing information to enterprises. 
Perception of tax conpliance of SMEs 
Sixteen components were selected reflecting 
the perception of tax compliance of taxpayers in 
Gia Lam district - Hanoi. Table 3 shows the 
average values and the standard deviations of the 
components on a five-point Likert scale and the 
PCA results. The KMO test = 0.65, so the data 
used in the PCA were relevant and significant. 
 The second and third columns of Table 3 
show that with an average of 4.37, the enterprises 
were highly aware of their tax obligations and 
responsibilities to the state. They paid taxes 
because they trusted the government's 
operations. With an average value of 3.76, most 
enterprises agreed that "tax rates are too high". 
They also agreed that tax systems are complex 
and unfair. Research by Helhel & Ahmed (2014) 
also showed that taxpayers in general in Yemen 
gave the highest scores for "tax rates are too 
high" and "the tax system is not fair". Tax 
compliance of taxpayers was also affected by 
non-taxpayers and a popular excuse was, "why 
am I paying taxes while people are evading 
taxes"? 
 The second part of Table 3 shows the 
analysis results of the PCA. It can be seen that 
the enterprises’ perception of tax compliance is 
divided into 5 main components (5 groups). 
 Component 1 can be named quality of tax 
services and is shown at the transmission 
coefficient of 0.50 with "considering the 
requirements of taxpayers when formulating tax 
policies". As can be seen, enterprises really need 
tax authorities to pay attention to their opinions 
when developing tax policies. 
Component 2 has a loading of 0.50 with 
"taxpayers affected by people who are not 
willing to pay taxes" and can be called social 
norms. This shows that enterprises always 
compare and observe others. If other enterprises 
do not pay taxes or do not have to pay taxes, the 
SMEs will tend not to pay or evade paying taxes. 
Previous studies of Van Cong Tuan (2012), Dang 
Thi Bach Van (2014), Pham Thi My Dung & Le 
Quoc Hieu (2015), and Bui Ngoc Toan (2017) 
also indicated that “social norms” was one of the 
significant factors impacting tax compliance. 
Component 3 can be named technology 
application with a very high loading of 0.63 for 
“application of technology in tax registration, 
declaration and payment”. It can be seen that 
enterprises need tax authorities to apply 
technology in the registration, declaration, and 
payment of taxes so that they can save time and 
avoid complicated administrative procedures. In 
practice, the application of technology has been 
playing an ever increasing role in public services 
operation, especially in tax administration. 
Technology application saves administrative 
costs for tax authorities, thereby minimizing 
A study on the tax obligations and perceived tax compliance of small and medium enterprises 
730 Vietnam Journal of Agricultural Sciences 
 Table 3. Average values and standard deviations of components in the PCA on perceived tax compliance at the selected SMEs 
Components Mean S.D 
Main components (PCA) 
1 2 3 4 5 
The effect of public spending 3.00 1.13 0.46 -0.12 0.05 -0.01 -0.05 
Consider the requirements of taxpayers when developing tax policies 2.76 1.21 0.50 0.09 0.05 0.05 0.15 
Taxpayers usually do not pay the exact amount of tax due 2.63 0.86 0.01 -0.02 -0.30 0.24 0.47 
Dissemination of psychology "why do I pay taxes while people are 
evading taxes" 
3.63 0.86 -0.02 0.45 0.21 0.32 0.20 
Taxpayers are affected by people who are not willing to pay taxes 3.75 0.83 -0.21 0.50 0.07 -0.12 -0.05 
Paying tax is the obligation of the business 4.37 0.49 0.33 0.09 -0.09 0.51 0.01 
Paying taxes reflects trust in the government's operations 3.62 0.99 -0.10 -0.05 0.24 0.49 -0.05 
Tax rates are too high 3.76 1.20 0.25 0.22 0.15 -0.43 0.00 
The current tax system is not suitable for business conditions 3.38 0.70 0.10 -0.19 0.24 -0.29 0.17 
The tax system is complex and unfair 3.63 0.70 0.04 0.28 -0.18 -0.14 0.27 
Frequency of tax inspections 2.75 1.31 -0.44 0.09 0.11 0.08 0.12 
Tax sanctions are not enough of a deterrent 2.37 1.00 0.21 -0.13 0.43 0.12 -0.12 
Extensive tax exemptions lead to inequality 3.13 1.18 0.14 0.52 -0.04 -0.03 -0.17 
Professional knowledge of tax officials 2.89 0.78 -0.15 -0.21 0.27 -0.02 0.50 
Working attitude of tax officials 3.39 0.99 0.13 0.08 -0.02 -0.12 0.54 
Application of technology in tax registration, declaration, and 
payment 
2.38 0.70 -0.04 0.12 0.63 -0.01 0.04 
Note: Loadings of are in bold. Component 1: Quality of tax services; Component 2: Social norms; Component 3: Technology 
application; Component 4: Enterprise responsibility; and Component 5: Quality of tax officials. 
interactions between tax authorities and 
taxpayers. 
Component 4 shows the enterprise 
responsibility with a loading of 0.51 for “paying 
tax is the obligation of the business”, which 
indicates that enterprises are aware that paying 
taxes is their responsibility. 
Component 5 can be named quality of tax 
officials with loadings of 0.50 and 0.54 for 
"professional knowledge of tax officials" and 
"working attitude of tax officials", respectively. 
The quality of the tax office staff plays an 
important role in corporate tax awareness. Such 
results are also consistent with those of previous 
studies by Nguyen Thi Le Thuy (2009), Van 
Cong Tuan (2012), and Bui Ngoc Toan (2017). It 
can be infered that tax officials need to improve 
their skills and attitudes to meet the enterprises’ 
requirements. 
Pham Thi My Dung & Le Quoc Hieu (2015) 
also showed that the perception of tax 
compliance could be divided into six main 
components, including quality perception, tax 
services, structure of the tax system, and social 
norms. However, our research pointed out that 
the quality of tax officials and the enterprises’ 
responsibility also played very important roles in 
the perception of tax compliance. 
Conclusions 
Enterprises in this study strongly perceived 
their obligations and responsibilities for paying 
taxes. Most taxpayers agreed with the statements 
that "tax rates are too high" and that there is a 
"complex and unfair tax system". The perception 
of tax compliance was divided into 5 main 
components, namely quality of tax services, 
³ 0.5
Nguyen Thi Huong et al. (2020) 
https://vjas.vnua.edu.vn/ 731 
social norms, technology application, enterprise 
responsibility, and quality of tax officials. 
Based on the results, this study provides 
some implications for tax authorities to 
complete their regulations and policies, and 
create conditions for enterprises to fulfill their 
tax obligations. First of all, tax authorities need 
to act as the official information provider, 
answering the problems of taxpayers. In 
addition, the regulations and order of 
implementation need to be promulgated 
synchronously and unified among relevant tax 
authorities. Tax authorities also need to consider 
an enterprise's views when developing tax 
policies and laws. Moreover, the tax authorities 
need to enhance the application of technology in 
tax registration, declaration, and payment. At 
the same time, the tax authorities need to 
improve their professional quality as well as 
standardize the tax officials. 
These are required interventions from a 
policy point of view. Tax compliance could be 
reinforced if taxpayers received better public 
services or if they responded positively to social 
norms. Moreover, there is a significant impact on 
tax compliance when the government and tax 
authorities apply modern techniques in fulfilling 
tax obligations. 
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