Fostering taxpayer integrity: The mediating role of tax awareness on the influence of trust in authorities and tax fairness towards MSME tax compliance

Abstract

Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in supporting economic growth; however, improving taxpayer compliance remains a major challenge, particularly in developing economies. Traditional tax compliance approaches that rely heavily on enforcement and sanctions are increasingly considered insufficient to encourage sustainable compliance. Therefore, strengthening taxpayer integrity through trust, fairness, and awareness has become essential in promoting voluntary tax compliance. This study aims to examine the influence of Trust in Authorities and Tax Fairness on MSME Tax Compliance, with Tax Awareness as a mediating mechanism. This study employed a quantitative explanatory approach using primary data collected through structured questionnaires. The respondents consisted of 364 MSME taxpayers in Bukittinggi City, West Sumatra, Indonesia, selected through purposive sampling. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS by evaluating the measurement model and structural model. The findings reveal that Trust in Authorities significantly influences Tax Awareness (β = 0.269; p = 0.006) and MSME Tax Compliance (β = 0.185; p = 0.020). Tax Fairness significantly affects Tax Awareness (β = 0.552; p < 0.001) but does not directly influence MSME Tax Compliance (β = 0.058; p = 0.525). Furthermore, Tax Awareness significantly enhances MSME Tax Compliance (β = 0.324; p = 0.001). Mediation analysis shows that Tax Awareness mediates the relationship between Tax Fairness and MSME Tax Compliance but does not mediate the relationship between Trust in Authorities and compliance. This study contributes to behavioral taxation literature by integrating the Theory of Planned Behavior and Slippery Slope Framework, demonstrating that taxpayer awareness acts as a psychological mechanism that transforms perceived fairness into voluntary compliance. The findings suggest that human-centered tax governance should prioritize fairness, transparency, and awareness-building strategies to foster sustainable MSME taxpayer integrity.