Date of Publication :7th December 2023

Abstract: MSMEs in Indonesia play an important role. Based on data submitted by the Ministry of Finance, MSMEs contribute around 90% of business activities and provide more than 50% of jobs in Indonesia. The problem of MSMEs is efforts to increase business to rise to a higher level and the tax contribution of MSMEs is still low. Understanding and knowledge is one of the causes of MSME problems. This study aims to determine whether MSME's understanding of tax literacy affects taxpayer compliance and competitive advantage and to determine whether MSME's competitive advantage affects performance. This study uses primary data sources, namely Creative MSMEs actors throughout the Special Region of Yogyakarta. Data were obtained through questionnaires which were distributed to MSMEs in the Yogyakarta area. The sample of this research is SMEs in the Yogyakarta area. Data analysis used the AMOS Structural Equation Modeling (SEM) model. The results show that there is an effect of financial literacy on tax compliance, there is an effect of tax compliance on competitive advantage, there is an effect of tax compliance on the performance of MSMEs and there is an effect of competitive advantage on the performance of MSMEs. However, tax literacy has no effect on competitive advantage. The implications of this research can be input for the government in making policies related to taxes for MSMEs.

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