Abstract:
Although tax compliance is essential for tax revenue generation, it continues to be a substantial challenge for small and medium enterprises (SMEs) despite the administrative changes, self-assessment mechanisms, and digital tax systems such as the Revenue Administration Management Information System (RAMIS). This study examines the factors influencing tax compliance among SMEs in Gampaha district, Sri Lanka. Specifically, it investigates the effects of tax knowledge, tax morale, tax rates, tax penalties and audits, and trust in the tax authority on tax compliance behaviour. A quantitative cross-sectional design was employed, using data collected from 125 owner-managers of SMEs through a structured questionnaire. The data were analysed using descriptive statistics and multiple regression techniques in IBM SPSS Statistics. The study contributes to empirical literature by demonstrating that enforcement mechanisms and intrinsic morale are primary drivers of compliance in semi-urban commercial hubs, whereas knowledge and trust operate indirectly through external tax intermediaries. The findings revealed that the overall tax morale and tax compliance of surveyed SMEs is low level. Tax morale, tax penalties, and audits are statistically significant predictors of tax compliance, while tax knowledge, tax rate, and trust in the tax authority are not significant direct predictors. The study findings suggest that moral responsibility and enforcement mechanisms are essential to enhance SME tax compliance in Gampaha District. The study offers important policy implications for tax authorities, such as the reinforcement of audit systems, promoting taxpayers' awareness, the ease of procedures, and fostering ethical responsibility among the SME owners.
