Assessing the Effectiveness of Law Enforcement on Improving Tax Compliance in Indonesia: An Empirical Investigation

Abstract

There are various studies on the relationship between law enforcement and tax compliance; however, a study that empirically examines the relationship between law enforcement and tax compliance within an actual tax administration’s strategy map is lacking in the literature. We examine an identified knowledge gap about whether, and precisely how effectively, law enforcement may impact tax compliance in Indonesia. Investigating administrative data from all 352 tax offices across Indonesia, we reveal two principal findings. First, that law enforcement appears to have a discernible impact on tax compliance. Second, that while audit coverage ratio has played a vital role in improving tax compliance, criminal investigation appears to be an influential factor in determining the effectiveness of law enforcement. We conclude that law enforcement is an important aspect of tax administration, and that better law enforcement would help the Indonesian tax authority improve tax compliance and raise revenue.