From awareness to capability in financial and tax reporting among entrepreneurs

Abstract

The present study examines the awareness of financial reporting and taxation issues among entrepreneurs in micro, small, and medium-sized enterprises (MSMEs) in the Greater Solo region of Indonesia. An exploratory qualitative approach was adopted for the data collection stage, involving semi-structured interviews, non-participant observation, and document review. The study involved MSMEs from a range of business sectors. Thematic analysis demonstrates that entrepreneurs recognize the significance of financial record-keeping and tax compliance for ensuring business sustainability, facilitating access to financing, and maintaining administrative legitimacy. However, this awareness is predominantly outcome-oriented and is not yet fully supported by procedural knowledge, accounting skills, or confidence in tax reporting. Bookkeeping practices are predominantly manual or semi-digital, inconsistent, and influenced by operational pressures, limited accounting literacy, and the psychological burden associated with taxation. Tax compliance is primarily driven by legal obligations and fear of penalties, rather than by a voluntary understanding of tax obligations, leading to reliance on external assistance. These findings draw on the Theory of Planned Behavior and demonstrate how perceived behavioral control is a key factor explaining the discrepancy between awareness and reporting ability. This study makes a valuable contribution by integrating financial reporting awareness, accounting competence, and tax compliance within a qualitative framework for SMEs.