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Abstract
The expansion of digital financial systems has transformed tax administration, yet tax compliance in digital economies remains inconsistent. Gaps in infrastructure, taxpayer trust, and digital literacy complicate efforts to enhance compliance, particularly among SMEs.
This study examines the impact of digital transactions, tax policy, and individual financial values (Love of Money) on tax compliance behavior, with the Core Tax Administration System (CTAS) serving as a mediating factor. A quantitative survey was conducted among 248 SME owners in the tourism sector across the Special Region of Yogyakarta and Bali. Data were analyzed using Structural Equation Modelling (SEM) with SmartPLS 4, supported by in-depth interviews and pre-validated instruments. Findings indicate that digital transactions do not directly lead to increased tax compliance due to systemic and behavioral constraints. Conversely, well-designed tax policies significantly improve compliance. By enhancing transparency and automation, CTAS effectively mediates the relationship between digital transactions, tax policy, and tax compliance. Improving digital tax compliance requires integrated systems, clear policy incentives, and reduced procedural burdens. The study informs tax authorities and policymakers on the importance of reinforcing system infrastructure and policy fairness to support taxpayer engagement in the digital economy.
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