A study on the tax obligations and perceived tax compliance of small and medium enterprises (SMES) in Gia Lam, Hanoi
ISSN 2588-1299
VJAS 2020; 3(3): 726-731
Vietnam Journal
of Agricultural
Sciences
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
Received: June 12, 2020
Accepted: October 30, 2020
Correspondence to
726
Vietnam Journal of Agricultural Sciences
Nguyen Thi Huong et al. (2020)
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.
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 questionnaire survey was conducted
randomly among 150 SMEs in September 2019.
The questionnaire was divided into two parts:
Part 1 included issues related to general
information about the SMEs: age, gender,
education, and management experience of the
enterprise’s owners.
Part 2 consisted of 16 factors reflecting the
enterprises' perceptions of tax compliance. These
factors were selected based on previous tax
compliance studies by Alan (1996), Cummings
et al. (2009), Nicolate (2011), Helhel & Ahmed
(2014), and some other non-published research.
The consequences of tax compliance were rated
on a Likert-type scale ranging from 1 to 5 in
which 1 represented a very low impact and 5
represented a very high impact.
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.
Secondary data were collected from three
tax authorities, the Gia Lam Tax Authority, the
Hanoi Tax Authority, and the General
Department of Taxation, and the financial
statements of the selected enterprises.
Data analysis
Descriptive statistics were used to determine
each enterprise's tax liability performance.
Principal component analysis (PCA) was
used to identify the groups of factors affecting
the tax compliance of the enterprises. 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.
Methodology
Data collection
Step 2: The VARIMAX rotation was used to
clarify and explain the factor groups better.
The research was carried out in Gia Lam,
which is a suburban district located in the
easternmost region of Hanoi, Vietnam. The
The transmission coefficient indicates how a
variable contributes to a major factor. All
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A study on the tax obligations and perceived tax compliance of small and medium enterprises
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).
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.
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.
Fulfilling tax obligations of SMEs
SMEs in Gia Lam district have to fulfill
several tax obligations: corporate income tax,
The SMEs owners had an average age of
39.2, of which the youngest owner was 33. These
Table 1. Socio-economic characteristics of SMEs
Category
Unit
Mean
Std. Dev.
Max
Min
Age of owner
Year
Year
39.20
6.90
4.52
3.47
47.00
12.00
33.00
1.00
Owner’s
experience
No. laborers
People
14.96
72.22
20.3
32.85
95.62
95.00
118.96
310.00
3.00
11.00
10.00
Total assets
Million VND
Million VND
Revenue in 2018
103.84
Table 2. Tax obligations of SMEs
Categories
Respondents (%)
Complicated and overlapped
36.67
63.33
35.33
64.67
75.33
24.67
25.33
74.67
49.33
50.67
46.00
Tax registration process
Tax declaration method
Complex tax
Accessable
Stable
Changed
Corporate income tax and VAT
Others
Sometimes
Never
VAT refund
Sometimes
Never
Tax delayed
Internet
Source of tax information
Tax authorities
54.00
Vietnam Journal of Agricultural Sciences
728
Nguyen Thi Huong et al. (2020)
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.
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"?
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.
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
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
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A study on the tax obligations and perceived tax compliance of small and medium enterprises
Table 3. Average values and standard deviations of components in the PCA on perceived tax compliance at the selected SMEs
Main components (PCA)
Components
The effect of public spending
Mean S.D
1
2
3
4
5
3.00
2.76
1.13
1.21
0.46
0.50
-0.12
0.09
0.05
0.05
-0.01
0.05
-0.05
0.15
Consider the requirements of taxpayers when developing tax policies
Taxpayers usually do not pay the exact amount of tax due
2.63
3.63
0.86
0.86
0.01
-0.02
0.45
-0.30
0.21
0.24
0.32
0.47
0.20
Dissemination of psychology "why do I pay taxes while people are
evading taxes"
-0.02
Taxpayers are affected by people who are not willing to pay taxes
3.75
4.37
3.62
3.76
3.38
0.83
0.49
0.99
1.20
0.70
-0.21
0.33
-0.10
0.25
0.10
0.50
0.09
-0.05
0.22
-0.19
0.07
-0.09
0.24
0.15
0.24
-0.12
0.51
-0.05
0.01
-0.05
0.00
0.17
Paying tax is the obligation of the business
Paying taxes reflects trust in the government's operations
0.49
Tax rates are too high
-0.43
-0.29
The current tax system is not suitable for business conditions
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
2.37
1.31
1.00
-0.44
0.21
0.09
0.11
0.43
0.08
0.12
0.12
Tax sanctions are not enough of a deterrent
Extensive tax exemptions lead to inequality
-0.13
-0.12
3.13
2.89
3.39
1.18
0.78
0.99
0.14
-0.15
0.13
0.52
-0.21
0.08
-0.04
0.27
-0.03
-0.02
-0.12
-0.17
0.50
0.54
Professional knowledge of tax officials
Working attitude of tax officials
-0.02
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
³ 0.5
application; Component 4: Enterprise responsibility; and Component 5: Quality of tax officials.
interactions between tax authorities and
taxpayers.
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.
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.
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,
Vietnam Journal of Agricultural Sciences
730
Nguyen Thi Huong et al. (2020)
compliance, Journal of Development & Integration.
16(26): 59-63 (in Vietnamese).
social norms, technology application, enterprise
responsibility, and quality of tax officials.
A. (1987). Supply-side tax policy: Its relevance to
developing countries. International Monetary Fund.
140-172. DOI: 10.5089/9780939934911.071.
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.
General Department of Taxation (2019). Report 2019 (in
Vietnamese).
General Statistics Office (2019). Report 2019 (in
Vietnamese).
General Statistics Office (2018). Report 2018 (in
Vietnamese).
Hair J., Black W., Babin B. & Anderson R. (2010).
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Helhel Y. & Ahmed Y. (2014). Factors Affecting Tax
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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.
Le Thi Minh Chau & Hoang Thi Mai Anh (2019).
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medium enterprises in Gia Lam district – Hanoi.
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Economics and Applied Informatics. 17(1): 69-76.
Nguyen Thi Le Thuy (2009). Improving tax collection
management of the State to enhance tax compliance of
enterprises in Hanoi. PhD thesis - National Economics
University.
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