COMPLIANCE CHALLENGES OF SMES: KEY AREAS OF DIFFICULTIES IN SALES AND SERVICE TAX 2.0
DOI:
https://doi.org/10.35631/AIJBES.827011Keywords:
Area Of Difficulties, SMEs, Sales and Service Tax 2.0, Tax ComplianceAbstract
The implementation of Sales and Service Tax 2.0 (SST 2.0) in Malaysia has posed various compliance challenges for Small and Medium Enterprises (SMEs). This study aims to investigate the specific areas of difficulty faced by SMEs in adhering to SST 2.0 requirements. The target population comprised SMEs operating in Malaysia, with a final sample of 127 respondents selected through a questionnaire survey. Descriptive analysis was employed to identify key problem areas. The findings reveal that the most significant challenge for SMEs is the need to upgrade their computerization systems (mean = 3.94, SD = 0.784), highlighting technological limitations that hinder efficient SST compliance. Additionally, the need to enhance accounting systems (mean = 3.91) and the increased burden of documentation for record-keeping (mean = 3.78) further demonstrate that administrative and system-related constraints are major obstacles. Knowledge gaps, including a lack of SST understanding (mean = 3.83) and limited familiarity with SST legislation (mean = 3.56), compound these operational challenges. Other difficulties include uncertainty over the HS Code for taxable goods and services and the risk of double taxation within supply chains. These findings underscore the need for policymakers and tax authorities to address these challenges through targeted support. Recommended measures include providing clear guidelines, simplifying procedures, enhancing outreach and training, and offering incentives to help SMEs upgrade their technological and accounting systems. Such efforts are essential to improve SST 2.0 compliance rates among SMEs and to ensure the efficiency and sustainability of Malaysia’s tax system.
Downloads
References
Abdul Halim, H., Ahmad, N. H., Geare, A., & Thurasamy, R. (2018). Innovation culture in SMEs: The importance of organizational culture, organizational learning andmarket orientation. Entrepreneurship Research Journal, 9(3), 1–14. https://doi.org/10.1515/erj-2017-0014
Ahmad, N., Alias, F. A., Hamat, M., & Mohamed, S. A. (2024). Reliability analysis: Application of Cronbach’s alpha in research instruments. https://appspenang.uitm.edu.my/sigcs/2024-2/Articles/20244_ReliabilityAnalysis-ApplicationOfCronbachsAlphaInResearchInstruments.pdf
Allingham, M. G., & Sandmo, A. (1972). Income tax evasion: A theoretical analysis. Journal of Public Economics, 1(3–4), 323–338. https://doi.org/10.1016/0047-2727(72)90010-2
Alshira’h, A. F., & Abdul-Jabbar, H. (2020). Moderating role of patriotism on sales tax compliance among Jordanian SMEs. International Journal of Islamic and Middle Eastern Finance and Management, 13(3), 389–415. https://doi.org/10.1108/imefm-04-2019-0139
Aziz, N., Syed Jamil Fadaak, S. M. F., Mohd Yusof, N. A., & Novita, S. (2022). Factors Affecting the Tax Compliance among Small and Medium Enterprises' Business Owners in Malaysia. 10th Asian Conference on Environment-Behaviour Studies, Holiday Villa Beach Resort, Cherating, Malaysia 08-09, Jun 2022, 7(20), 41 – 48. https://doi.org/10.21834/ebpj.v7i20.3542
Bello, H. O., Idemudia, C., & Iyelolu, T. V. (2024). Navigating financial compliance in Small and Medium-Sized Enterprises (SMEs): Overcoming challenges and implementing effective solutions. World Journal of Advanced Research and Reviews, 23(1), 042–055. https://doi.org/10.30574/wjarr.2024.23.1.1984
Chin, Y. W., & Lim, E. S. (2018). SME policies and performance in Malaysia (ISEAS Working Paper No. 2018-3). ISEAS–Yusof Ishak Institute. https://www.iseas.edu.sg/wp-content/uploads/pdfs/ISEAS_EWP_2018-3_ChinLim.pdf
Collins Dictionary. (n.d.). Problem area. In Collins English Dictionary. Retrieved July 30, 2025, from https://www.collinsdictionary.com/dictionary/english/problem-area
Cronbach, L. J. (1951). Coefficient alpha and the internal structure of tests. Psychometrika, 16(3), 297-334.
Ernest, B. T., Danie, S., & Nicholas, A. (2022). Determinants of tax compliance costs of small and medium enterprises in emerging economies: Evidence from Ghana. Social Sciences & Humanities Open, 6(1), 1 – 8. https://doi.org/10.1016/j.ssaho.2022.100343
European Commission: European Innovation Council and SMEs Executive Agency, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, KPMG, VVA, Di Legge, A., Ceccanti, D., Hortal Foronda, F., Németh, M., & Csonka, M. (2022). Tax compliance costs for SMEs: an update and a complement: final report, Publications Office of the European Union. https://data.europa.eu/doi/10.2873/180570
Gjoni, A., Gogo, G., & Uku, S. (2024). Factors Influencing Tax Evasion in The Developing Country: A Regulatory Policy Context. Journal of Governance & Regulation, 13(4), 8–14. https://doi.org/10.22495/jgrv13i4art1
Hair, J. F. Jr., Hult, G. T. M., Ringle, C. M., Sarstedt, M., Danks, N. P., & Ray, S. (2021). Partial least squares structural equation modeling (PLS-SEM) using R: A workbook. Springer Nature. https://doi.org/10.1007/978-3-030-80519-7
Inasius, F. (2018). Factors Influencing SME Tax Compliance: Evidence from Indonesia. International Journal of Public Administration, 42(5), 367–379. https://doi.org/10.1080/01900692.2018.1464578
Joshi, A., Kale, S., Chandel, S., & Pal, D. K. (2015). Likert scale: Explored and explained. British Journal of Applied Science & Technology, 7(4), 396–403.
Kgakatsi, M., Galeboe, O. P., Molelekwa, K. K., & Thango, B. A. (2024). The impact of big data on SME performance: A systematic review. Businesses, 4(4), 632–695. https://doi.org/10.3390/businesses4040038
Kothandan, K., & Palil, M. R. (2022). Issues and Problems on The Implementation of Sales and Service Tax (SST) 2.0 Among Business Entities. International Journal of Business, Economics and Law, 28(1), 39 – 53.
KPMG. (2024). Study finds taxpayers at varying readiness for e-invoicing. https://kpmg.com/my/en/home/media/press-releases/2024/12/study-finds-taxpayers-at-varying-readiness-for-einvoicing.html
Lee, V. J. Y., & Nair, S. (2024). Tax Compliance Among SMEs: A Study in Selangor Malaysia. Asia-Pacific Journal of Business, Humanities, and Education, 9(2), 49–76.
Loo, E. C., & Bin Md Taib, M. S. (2017). Goods and services tax (GST): Challenges faced by business operators in Malaysia. SHS Web of Conferences, 36, 00027.
https://doi.org/10.1051/shsconf/20173600027
Loo, K. M., Ramachandran, S., & Raja Yusof, R. N. (2023). Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs). Cogent Economics & Finance, 11(2). https://doi.org/10.1080/23322039.2023.2267748
Marimuthu, M., & Bidin, Z. (2016). Awareness, attitude and probable area of difficulties towards the proposed goods and services tax in Malaysia. International Review of Management and Marketing, 6(S8), 175–180. https://econjournals.com/index.php/irmm/article/view/3928
Mohd Ali, M. A., Zahari, M. B. Q., & Harizan, N. A. N. (2020). The Influence of Tax Penalties Towards Tax Compliance Among SMEs in Selangor. Global Business and Management Research: An International Journal,12(4), 297 – 307. https://www.gbmrjournal.com/pdf/v12n4/V12N4-27.pdf
Mohd Jamel, N. E. S., Abdul Hamid, N., Mohd Zawawi, S. N. H., Othman, R. D., & Sulaiman, S. (2021). The Role of Tax Authorities in Public Acceptance of Indirect Tax in Malaysia. Jurnal Intelek, 16(1), 233 – 243.https://doi.org/10.24191/ji.v16i1.385
Mohd Jamel, N. E. S., & Popoola, O. M. J. (2020). Examining Public Acceptance Choice Causes on Sales and Service Tax Implementation in Malaysia. Problems and Perspectives in Management,18(4), 228 – 246. http://dx.doi.org/10.21511/ppm.18(4).2020.20
Royal Malaysian Customs Department. (n.d.). Background. Retrieved July 30, 2025, from https://mysst.customs.gov.my/AboutBackground
Sandford, C., Godwin, M., & Hardwick, P. (1989). Administrative and compliance costs of taxation. Bath, UK: Fiscal Publications
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill-building approach (7th ed.). John Wiley & Sons.
SME Corp. Malaysia. (n.d.). SME Definitions. Retrieved July 30, 2025, from https://smecorp.gov.my/index.php/en/policies/2020-02-11-08-01-24/sme-definition
SME Corp. Malaysia. (2024). Profile of MSMEs in 2015-2023. Retrieved July 30, 2025, from https://smecorp.gov.my/index.php/en/policies/2020-02-11-08-01-24/profile-and-importance-to-the-economy
SME Corp. Malaysia. (2025). MSME Insights 2023/24: Advancing Productivity and MSMEs’ Participation in the Value Chain. Retrieved July 30, 2025, from https://smecorp.gov.my/index.php/en/component/content/article/191-laporan-tahunan/5066-msme-insights-2023-24-new-release
Tajudeen, F. P., Moghavvemi, S., Thirumoorthi, T., Phoong, S. W., & Binti Abdul Bahri, E. N. (2025). Impact of digital transformation on business functional areas of SMEs. In Digital Transformation of Malaysian Small and Medium Enterprises (pp. 45–68). Emerald Publishing. https://doi.org/10.1108/978-1-83662-168-320251003
Teh, S. W., Syed Ali, S. S., & Mohd Kamal, K. A. (2024). From Taxes to Prosperity: The Role of Tax Revenue in Malaysia’s Economic Growth. Unimas Review of Accounting and Finance, 8(1), 93-105.
World Bank Group. (2020, February). Malaysia’s experience with the Small and Medium-Sized Enterprises Masterplan: Lessons learned. Malaysia Development Experience Series. https://documents1.worldbank.org/curated/en/504361583989615623/pdf/Malaysia-s-Experience-with-the-Small-and-Medium-Sized-Enterprises-Masterplan-Lessons-Learned.pdf
