Tax compliance of small and medium enterprises: A case study in Thua Thien Hue

Hue University Journal of Science: Economics and Development 
pISSN 2588-1205; eISSN 2615-9716 
Vol. 130, No. 5B, 2021, pp. 17–30; DOI: 10.26459/hueunijed.v130i5B.6273 
* Corresponding: atnlien@hueuni.edu.vn 
Submitted: April 1, 2021; Revised: April 13, 2021; Accepted: April 17, 2021 
TAX COMPLIANCE OF SMALL AND MEDIUM ENTERPRISES: 
A CASE STUDY IN THUA THIEN HUE 
Au Thi Nguyet Lien*, Hoang Trong Hung, Nguyen Dang Hao, Tran Duc Tri 
University of Economics, Hue University, 99 Ho Dac Di St., Hue, Vietnam 
Abstract. Tax compliance is the concern of many researchers and tax managers. Based on secondary data 
from tax authorities and primary data collected from 362 small and medium enterprises (SMEs), we assess 
the tax compliance of small and medium enterprises. Descriptive statistics and one-way analysis of 
variance are used to analyse the data. The results show that SMEs receive various types of support to 
enhance their tax compliance. Further, both secondary and primary data indicate that SMEs have an 
adequate level of tax compliance. However, there are differences among sectors concerning tax declaration 
assessment. Based on these results, we discuss and propose several managerial and policy measures to 
improve SMEs’ tax compliance. 
Keywords: tax compliance, small and medium enterprises, tax declaration assessment, managerial and 
policy measures 
1 Introduction 
Tax compliance has attracted the attention of tax managers and researchers in recent years. 
Most countries have developed general compliance strategies for managing tax effectively and 
efficiently. The Organisation for Economic Co-operation and Development (OECD) believes 
that the private sector plays a critical role in economic growth and development [22, 28]. 
However, tax evasion and tax non-compliance still exist and cause some risks for tax 
administration and the state budget. Therefore, domestic and international tax authorities need 
to spend considerable resources to ensure fairness. One of the biggest challenges for tax 
compliance is high compliance cost, even though numerous enterprises want to comply [27]. 
This challenge comes from a flawed tax system and an inadequate understanding of the tax 
system. Therefore, it is urgent to create a favourable environment and modern and 
straightforward tax management to facilitate small and medium-sized enterprises (SMEs) to 
carry out production and business. 
By the end of 2019, Thua Thien Hue province had 6,500 enterprises, of which 4,568 were 
SMEs. SMEs contributed VND 1,094 billion to the state budget revenue from enterprises 
(equivalent to 27.32%) [3] and created over 36,986 jobs (equivalent to 41.01%) of the total 
number of employees working in enterprises. The present reality shows that enterprises have 
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difficulties understanding and complying with tax policies, mainly due to the lack of legal 
knowledge [7]. Besides, businesses often face challenges in implementing tax policies and 
administrative procedures. Although various enterprises want to comply voluntarily, they do 
not have enough information to conform to regulatory procedures [26]. The inspection and 
examination from tax authorities reveal that the number of enterprises that declare tax rates, 
withhold and pay tax incorrectly increases annually. Such violation includes late tax payment 
and no tax payment, which lead to a large amount of tax arrears, administrative penalties for 
tax and late fines payment [10–12]. Indeed, although tax authorities in recent years have offered 
tax service programs to support businesses to implement tax compliance [34, 35], the 
improvement in tax compliance of enterprises is insignificant in terms of tax fines. 
In recent years, there have been numerous studies focusing on tax compliance of 
individuals [1], tax costs [5], taxpayer characteristics [29, 31, 32], tax audits [13], and the 
complexity of tax policy [31]. However, a few enterprises’ tax compliance studies have been 
conducted [5, 6]. Moreover, these studies focused only on a particular type of tax (e.g., income 
tax) or concentrated on influencing factors of tax compliance. To the best of our knowledge, no 
research explores the support activities to enhance SMEs’ tax compliance and assesses SMEs’ 
tax compliance from both objective and subjective perspectives. This study, therefore, seeks to 
answer the following two questions. 
1. What are the primary support activities to enhance SMEs’ tax compliance? 
2. What is the level of tax compliance among SMEs in Thua Thien Hue? Are there any 
differences in the level of tax compliance among SME categories? 
2 Literature review 
2.1 Tax compliance 
Tax compliance is an essential topic for numerous tax authorities to convince taxpayers to do 
their duty. Song and Yarbrough [33] indicate that tax compliance is taxpayers’ ability and 
willingness to comply wi ...  radio are 
very limited (16.6%). 
Most enterprises decide to visit the tax office (72.9%) and call directly (68.0%) to receive 
support and answers from the tax authorities. The less common forms are participating in the 
dialogue (co-)organised by tax authorities (49.4%), researching documents (33.1%), and sending 
official letters (16.6%). 
Table 3. Tax compliance enhancement activities in which the business is engaged 
Unit: Enterprises 
Activity Frequency Percentage (%) 
Accessing tax information from the tax authority 
Training at the tax authorities 280 77.3 
Web portals of the tax authorities 207 57.2 
Documents from the tax authorities 150 41.4 
Newspaper, television and radio in collaboration with the tax 
authorities 
60 16.6 
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Activity Frequency Percentage (%) 
Receiving support and answered questions from the tax authority 
Directly go to the tax office 264 72.9 
Directly call to the tax authorities 246 68.0 
Attend dialogues (co-) organised by the tax authorities 179 49.4 
Documents from the tax authorities 120 33.1 
Send official letters to the tax authorities 60 16.6 
Source: Primary data (2020) 
Tax compliance status through survey 
Table 4 describes the number and percentage of enterprises that tend to agree (i.e., if their 
answer is either “agree” or “totally agree”) with specific tax compliance statements. 
(1) Enterprises always register and supply tax registration information on time: Regarding this 
statement, 343 enterprises (94.8%) tend to agree, and 84.6% of them totally agree with this 
statement. Meanwhile, only one enterprise shows their total disagreement, and only four 
enterprises show their disagreement with the statement. 
(2) Enterprises always declare tax fully and on time (necessary information, such as tax declaration 
papers, financial statements, change of information, etc.): 349 enterprises (96.5%) tend to agree with 
the second statement. In particular, a very high percentage (88.2%) of enterprises totally agree, 
and only one enterprise totally disagrees with this statement. 
(3) Enterprises always pay taxes fully and on time: 327 enterprises (90.8%) tend to agree with this 
statement. While 76.5% of enterprises show their complete agreement, only two enterprises 
indicate their complete disagreement with the third statement. 
(4) Enterprises always report their tax obligations accurately and completely (according to the content of 
arising economic operations): Nearly 94% of enterprises tend to agree, and only 1.1% of enterprises 
indicate their disagreement or complete disagreement with this statement. 
Table 4. Tax compliance status from the SMEs survey 
Unit: Enterprises 
Statement Min Max Mean 
Standard 
deviation 
The number 
of enterprises 
tending to 
agree 
The 
percentage of 
enterprises 
tending to 
agree (%) 
1. Enterprises always register and 
supply tax registration 
1 7 6.32 0.934 343 94.8 
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Statement Min Max Mean 
Standard 
deviation 
The number 
of enterprises 
tending to 
agree 
The 
percentage of 
enterprises 
tending to 
agree (%) 
information on time 
2. Enterprises always declare tax 
fully and on time (necessary 
information: tax declaration 
papers, financial statements, 
change of information, etc.) 
1 7 6.41 0.861 349 96.5 
3. Enterprises always pay taxes 
fully and on time 
1 7 6.06 1.046 327 90.8 
4. Enterprises always report their 
tax obligations accurately and 
completely (follows the incurred 
business accounting events) 
1 7 6.31 0.918 340 93.4 
Total 362 100.0 
Source. Primary data (2020) 
Differences in tax compliance level 
The test results in Table 5 show no significant difference in tax compliance among groups of 
enterprises in terms of duration, type, working capital, number of employees, and revenue, and 
significant differences between enterprises in different tax assessment fields. Specifically, the 
average level of compliance with tax declaration in the construction sector is higher than that of 
enterprises in industry/manufacturing, trade/service, etc. 
Table 5. Testing the differences in tax compliance assessment among different types of enterprises 
(p value) 
Classification criteria 
Tax compliance 
Always register 
and supply 
information on 
time 
Always declare tax 
completely and on 
time 
Always pay tax in 
full and on time 
Always 
report tax 
responsibility 
in full and 
accurately 
Duration 0.170 0.219 0.371 0.134 
Type 0.355 0.425 0.812 0.404 
Sector 0.1931 0.022*1 0.883 0.528 
Working capital 0.4001 0.3351 0.537 0.189 
Number of employees 0.604 0.966 0.851 0.968 
Revenue 0.750 0.270 0.487 0.803 
Note: *: statistically significant (p 0.05); 1: Welch test 
Source. Primary data (2020) 
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5 Conclusions and implications 
Based on data in Thua Thien Hue, we explored the support activities for SEMs’ tax compliance 
and evaluated SMEs’ tax compliance objectively and subjectively. The research shows that 
training and web portals are the most popular channels for SMEs to access tax information. 
Visiting or calling the tax authorities is the most popular activity to receive support and 
answered questions. Further, secondary data from the tax authorities indicate that the number 
of new registrations has increased over the years. All ratios related to tax declaration and tax 
reports have an increasing trend. However, the debt ratio in tax payment is still high compared 
with the limitation regulated by the tax authorities. The survey data also show a similar pattern 
of SMEs’ tax compliance. The percentage of enterprises that agree that they comply adequately 
with tax registration, tax declaration, and tax reports is relatively high. Meanwhile, the rate of 
SMEs deciding that they always pay taxes fully and on time is slightly lower. There is no 
significant difference in tax compliance self-evaluation among groups of enterprises except a 
slightly higher difference from enterprises in the construction sector in evaluating the tax 
declaration. 
Based on these results, we proposed managerial and policy implications in improving tax 
compliance of small and medium enterprises. 
5.1 Implications for tax authorities in tax management 
First, in terms of tax service models, the global trend of improving tax compliance for SMEs is 
based on tax authorities’ support and guide forms. Therefore, tax authorities need to consider 
enhancing support activities for SMEs. Accordingly, tax authorities should provide complete 
tax information, quickly solve businesses’ problems, and meet businesses’ requirements to 
improve their tax compliance. In addition, tax authorities need to promptly deploy electronic 
tax services, such as tax declaration, tax payment, and tax reporting. 
Second, tax officers should be ready to provide tax services with early warnings to solve 
businesses’ problems. Further, tax officers in internal functional departments of tax authorities 
should coordinate with external agencies, such as treasury and bank, to provide timely dossiers, 
quick guidance, and support and solve businesses’ problems. 
5.2 Implications for SMEs to enhance tax compliance 
First, tax accountants of enterprises need to regularly update official tax service channels of tax 
authorities to minimise tax errors and tax risks leading to penalties for tax administrative 
violations. Tax guidance from tax authorities is considered the official information that provides 
various tax supports and new tax policies, including policies for SEMs. SMEs, therefore, need to 
proactively update their tax policies and request guidance from tax authorities to enhance their 
tax compliance. 
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Second, SMEs should regularly update tax declaration versions and electronic tax 
applications of tax authorities to implement tax compliance well. Besides, SMEs should 
periodically update information and change equipment to meet the digital transformation 
required by tax authorities. 
Finally, improving tax accountants’ competencies is a crucial requirement for SMEs to 
enhance tax compliance, thus minimising the risk of tax issues. Therefore, SMEs need to focus 
on building quality human resources for their tax accountants. 
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