What question did this study set out to answer?

To explore how tax and compliance costs influence the financial performance of SMEs.

April 20, 2026Open Access

A Study on the Effect of Tax and Statutary Compliance Costs on Small and Medium Enterprises Smes

Key Points

To explore how tax and compliance costs influence the financial performance of SMEs.
Analyzed a three-year dataset of SMEs
Assessed profitability and revenue correlation with compliance costs
Conducted regression analysis for predictive modeling
Strong positive correlation between compliance costs and profitability (r = 0.993)
Strong positive correlation between compliance costs and revenue (r = 0.968)
Adjusted R^2 = 0.984 indicates significant predictive power for compliance costs on profit
High procedural costs can negatively affect operational efficiency, particularly in unstable revenue periods

Abstract

This study investigates the impact of tax and statutory compliance costs on the financial performance of SMEs using a three-year dataset. Analysis reveals a very strong positive correlation between compliance costs and both profitability (r = 0. 993) and revenue (r = 0. 968), indicating that regulatory burdens scale as businesses grow. Regression results (Adjusted R² = 0. 984 for profit; p = 0. 000) confirm these costs as significant predictors of financial outcomes. While compliance ensures transparency, high procedural costs can strain operational efficiency, especially during revenue instability. The paper recommends simplified tax processes and digitalization to optimize SME performance.

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