IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i12p532-d1527297.html
   My bibliography  Save this article

Flourishing MSMEs: The Role of Innovation, Creative Compliance, and Tax Incentives

Author

Listed:
  • Prianto Budi Saptono

    (Department of Fiscal Administration, Faculty of Administrative Science, Universitas Indonesia, Depok 16424, Indonesia)

  • Ismail Khozen

    (Department of Fiscal Administration, Faculty of Administrative Science, Universitas Indonesia, Depok 16424, Indonesia
    Tax Policy Research Department, Pratama Institute for Fiscal Policy and Governance Studies, Jakarta 12530, Indonesia)

  • Gustofan Mahmud

    (Tax Policy Research Department, Pratama Institute for Fiscal Policy and Governance Studies, Jakarta 12530, Indonesia
    Accounting Department, Swadaya Institute of Communication and Business, Jakarta 13620, Indonesia)

  • Sabina Hodžić

    (Department of Public Finance, Faculty of Tourism and Hospitality Management, University of Rijeka, 51410 Opatija, Croatia)

  • Intan Pratiwi

    (Tax Policy Research Department, Pratama Institute for Fiscal Policy and Governance Studies, Jakarta 12530, Indonesia)

  • Dwi Purwanto

    (Tax Policy Research Department, Pratama Institute for Fiscal Policy and Governance Studies, Jakarta 12530, Indonesia)

  • Lambang Wiji Imantoro

    (Tax Policy Research Department, Pratama Institute for Fiscal Policy and Governance Studies, Jakarta 12530, Indonesia)

Abstract

This study explores the interplay between tax incentives, creative compliance, and innovation in enhancing business resilience and sustainability among micro, small, and medium enterprises (MSMEs) in Indonesia, addressing gaps in the existing literature regarding their interrelationships during crises. A cross-sectional survey of 360 MSMEs was conducted, utilizing the Partial Least Squares Structural Equation Modeling (PLS-SEM) approach to analyze complex relationships among variables. The findings reveal that creative compliance, including tax planning and avoidance, does not directly impact resilience or sustainability. While tax incentives did not significantly enhance resilience during crises, they contributed to long-term sustainability. Innovation emerged as a critical factor linking creative compliance to business success and fully mediating the effects of tax incentives on resilience. This study emphasizes the necessity for MSMEs to prioritize innovation in their strategies, particularly in conjunction with effective tax practices, and highlights the need for government support through simplified regulatory frameworks to foster an innovative business environment. Limitations include the challenges of incorporating control variables in SEM and the need for further research into the long-term effects of these factors on sustainable performance.

Suggested Citation

  • Prianto Budi Saptono & Ismail Khozen & Gustofan Mahmud & Sabina Hodžić & Intan Pratiwi & Dwi Purwanto & Lambang Wiji Imantoro, 2024. "Flourishing MSMEs: The Role of Innovation, Creative Compliance, and Tax Incentives," JRFM, MDPI, vol. 17(12), pages 1-50, November.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:532-:d:1527297
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/12/532/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/12/532/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kirchler, Erich & Maciejovsky, Boris & Schneider, Friedrich, 2003. "Everyday representations of tax avoidance, tax evasion, and tax flight: Do legal differences matter?," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 535-553, August.
    2. Jonathon Mackay & Albert Munoz & Matthew Pepper, 2020. "Conceptualising redundancy and flexibility towards supply chain robustness and resilience," Journal of Risk Research, Taylor & Francis Journals, vol. 23(12), pages 1541-1561, December.
    3. Derissen, Sandra & Quaas, Martin F. & Baumgärtner, Stefan, 2011. "The relationship between resilience and sustainability of ecological-economic systems," Ecological Economics, Elsevier, vol. 70(6), pages 1121-1128, April.
    4. Mukaram Ali Khan & Syed Sohaib Zubair & Kashif Rathore & Maryam Ijaz & Sumreen Khalil & Muhammad Khalil, 2021. "Impact of Entrepreneurial Orientation Dimensions on Performance of Small Enterprises: Do Entrepreneurial Competencies Matter?," Cogent Business & Management, Taylor & Francis Journals, vol. 8(1), pages 1943241-194, January.
    5. Rudrajeet Pal & Roy Andersson & HÃ¥kan Torstensson, 2012. "Organisational resilience through crisis strategic planning: a study of Swedish textile SMEs in financial crises of 2007-2011," International Journal of Decision Sciences, Risk and Management, Inderscience Enterprises Ltd, vol. 4(3/4), pages 314-341.
    6. Ismail Khozen & Milla Sepliana Setyowati, 2023. "Managing taxpayer compliance: Reflections on the drivers of willingness to pay taxes in times of crisis," Cogent Business & Management, Taylor & Francis Journals, vol. 10(2), pages 2218176-221, December.
    7. Smallbone, David & Welter, Friederike, 2001. "The Distinctiveness of Entrepreneurship in Transition Economies," Small Business Economics, Springer, vol. 16(4), pages 249-262, June.
    8. Małgorzata Okręglicka & Prabhat Mittal & Valentinas Navickas, 2023. "Exploring the Mechanisms Linking Perceived Organizational Support, Autonomy, Risk Taking, Competitive Aggressiveness and Corporate Sustainability: The Mediating Role of Innovativeness," Sustainability, MDPI, vol. 15(7), pages 1-23, March.
    9. Marko Sarstedt & Christian M Ringle & Jun-Hwa Cheah & Hiram Ting & Ovidiu I Moisescu & Lacramioara Radomir, 2020. "Structural model robustness checks in PLS-SEM," Tourism Economics, , vol. 26(4), pages 531-554, June.
    10. Kim, Hakkon & Batten, Jonathan A. & Ryu, Doojin, 2020. "Financial crisis, bank diversification, and financial stability: OECD countries," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 94-104.
    11. Menozzi, Davide & Fioravanzi, Martina & Donati, Michele, 2015. "Farmer’s motivation to adopt sustainable agricultural practices," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 4(2), pages 1-23, August.
    12. Ebersberger, Bernd & Kuckertz, Andreas, 2021. "Hop to it! The impact of organization type on innovation response time to the COVID-19 crisis," Journal of Business Research, Elsevier, vol. 124(C), pages 126-135.
    13. F. Testa & F. Iraldo & A Vaccari & E. Ferrari, 2015. "Why Eco‐labels can be Effective Marketing Tools: Evidence from a Study on Italian Consumers," Business Strategy and the Environment, Wiley Blackwell, vol. 24(4), pages 252-265, May.
    14. Johan Jansson & Jonas Nilsson & Frida Modig & Gabriella Hed Vall, 2017. "Commitment to Sustainability in Small and Medium‐Sized Enterprises: The Influence of Strategic Orientations and Management Values," Business Strategy and the Environment, Wiley Blackwell, vol. 26(1), pages 69-83, January.
    15. Iramani & Abu Amar Fauzi & Dewi Ayu Wulandari & Lutfi, 2018. "Financial literacy and business performances improvement of micro, small, medium-sized enterprises in East Java Province, Indonesia," International Journal of Education Economics and Development, Inderscience Enterprises Ltd, vol. 9(4), pages 303-323.
    16. Mulligan, Emer & Oats, Lynne, 2016. "Tax professionals at work in Silicon Valley," Accounting, Organizations and Society, Elsevier, vol. 52(C), pages 63-76.
    17. Soytas, Mehmet Ali & Denizel, Meltem & Durak Usar, Damla, 2019. "Addressing endogeneity in the causal relationship between sustainability and financial performance," International Journal of Production Economics, Elsevier, vol. 210(C), pages 56-71.
    18. Peter Ebbes & Dominik Papies & Harald J. van Heerde, 2011. "The Sense and Non-Sense of Holdout Sample Validation in the Presence of Endogeneity," Marketing Science, INFORMS, vol. 30(6), pages 1115-1122, November.
    19. Andrea Filippetti & Petros Gkotsis & Antonio Vezzani & Antonio Zinilli, 2020. "Are innovative regions more resilient? Evidence from Europe in 2008–2016," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 807-832, October.
    20. Stefan Schaltegger & Marcus Wagner, 2011. "Sustainable entrepreneurship and sustainability innovation: categories and interactions," Business Strategy and the Environment, Wiley Blackwell, vol. 20(4), pages 222-237, May.
    21. Gracia, Louise & Oats, Lynne, 2012. "Boundary work and tax regulation: A Bourdieusian view," Accounting, Organizations and Society, Elsevier, vol. 37(5), pages 304-321.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neba Bhalla & Rakesh Kumar Sharma & Inderjit Kaur, 2023. "Effect of Goods and Service Tax System on Business Performance of Micro, Small and Medium Enterprises," SAGE Open, , vol. 13(2), pages 21582440231, June.
    2. Andrew Mzembe, 2021. "The psychological distance and construal level perspectives of sustainable value creation in SMEs," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(2), pages 465-478, March.
    3. Raitasuo, Santtu, 2024. "The conflict of interest in tax scholarship," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 99(C).
    4. Diana Onu & Lynne Oats & Erich Kirchler & Andre Julian Hartmann, 2019. "Gaming the System: An Investigation of Small Business Owners’ Attitudes to Tax Avoidance, Tax Planning, and Tax Evasion," Games, MDPI, vol. 10(4), pages 1-17, November.
    5. Anesa, Mattia & Gillespie, Nicole & Spee, A. Paul & Sadiq, Kerrie, 2019. "The legitimation of corporate tax minimization," Accounting, Organizations and Society, Elsevier, vol. 75(C), pages 17-39.
    6. Yoganathan, Vignesh & Osburg, Victoria-Sophie & Akhtar, Pervaiz, 2019. "Sensory stimulation for sensible consumption: Multisensory marketing for e-tailing of ethical brands," Journal of Business Research, Elsevier, vol. 96(C), pages 386-396.
    7. Guo‐Ciang Wu, 2017. "Effects of Socially Responsible Supplier Development and Sustainability‐Oriented Innovation on Sustainable Development: Empirical Evidence from SMEs," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 24(6), pages 661-675, November.
    8. Linda Westman & Christopher Luederitz & Aravind Kundurpi & Alexander Julian Mercado & Olaf Weber & Sarah Lynne Burch, 2019. "Conceptualizing businesses as social actors: A framework for understanding sustainability actions in small‐ and medium‐sized enterprises," Business Strategy and the Environment, Wiley Blackwell, vol. 28(2), pages 388-402, February.
    9. Christoph Constantin Niemann & Petra Dickel & Gordon Eckardt, 2020. "The interplay of corporate entrepreneurship, environmental orientation, and performance in clean‐tech firms—A double‐edged sword," Business Strategy and the Environment, Wiley Blackwell, vol. 29(1), pages 180-196, January.
    10. Antonio Duréndez & Julio Dieguez-Soto & Antonia Madrid-Guijarro, 2023. "The influence of CEO’s financial literacy on SMEs technological innovation: the mediating effects of MCS and risk-taking," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-26, December.
    11. Jennie Cederholm Björklund, 2018. "Barriers to Sustainable Business Model Innovation in Swedish Agriculture," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 14(1), pages 65-90.
    12. De Widt, Dennis & Oats, Lynne, 2024. "Imagining cooperative tax regulation: Common origins, divergent paths," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 99(C).
    13. Anja Gaudig & Bernd Ebersberger & Andreas Kuckertz, 2021. "Sustainability-Oriented Macro Trends and Innovation Types—Exploring Different Organization Types Tackling the Global Sustainability Megatrend," Sustainability, MDPI, vol. 13(21), pages 1-19, October.
    14. Löhlein, Lukas & Müßig, Anke, 2020. "At the boundaries of institutional theorizing: Individual entrepreneurship in episodes of regulatory change," Accounting, Organizations and Society, Elsevier, vol. 83(C).
    15. Ormeño-Pérez, Rodrigo & Oats, Lynne, 2024. "The making of problematic tax regulation: A Bourdieusian perspective," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 99(C).
    16. Marcos Carchano & Jean-Marie Cardebat & Angela Gonzalez & Inmaculada Carrasco, 2024. "Moving toward environmental sustainability through green entrepreneurship: assessing the moderating role of managerial environmental commitment," International Entrepreneurship and Management Journal, Springer, vol. 20(3), pages 2209-2240, September.
    17. Radcliffe, Vaughan S. & Spence, Crawford & Stein, Mitchell & Wilkinson, Brett, 2018. "Professional repositioning during times of institutional change: The case of tax practitioners and changing moral boundaries," Accounting, Organizations and Society, Elsevier, vol. 66(C), pages 45-59.
    18. Vaithilingam, Santha & Ong, Chu Sun & Moisescu, Ovidiu I. & Nair, Mahendhiran S., 2024. "Robustness checks in PLS-SEM: A review of recent practices and recommendations for future applications in business research," Journal of Business Research, Elsevier, vol. 173(C).
    19. Vinko Muštra & Blanka Šimundić & Zvonimir Kuliš, 2020. "Does innovation matter for regional labour resilience? The case of EU regions," Regional Science Policy & Practice, Wiley Blackwell, vol. 12(5), pages 955-970, October.
    20. Chin‐jung Luan & Chengli Tien & Pei‐hua Wu, 2013. "Strategizing Environmental Policy and Compliance for Firm Economic Sustainability: Evidence from Taiwanese Electronics Firms," Business Strategy and the Environment, Wiley Blackwell, vol. 22(8), pages 517-546, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:532-:d:1527297. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.