The Impact of Financial Literacy on Tax Compliance in Indonesia with a Focus on the 12% Tax Rate

This paper examines the impact of financial literacy on tax compliance in Indonesia, particularly focusing on the upcoming increase in Value Added Tax (VAT) to 12% scheduled for 2024. As a developing nation with as substantial population, Indonesia faces challenges in increasing state revenue through taxation. Financial literacy, defined as the ability to understand and effectively manage financial concepts, plays a vital role in enhancing tax compliance among the populace. The study highlights that individuals with higher financial literacy are more likely to comprehend the importance of paying taxes, understand their rights and obligations as taxpayers, and accurately calculate their tax liabilities. Conversely, those with lower financial literacy levels often struggle to grasp tax regulations and may be less compliant. The findings underscore that boosting financial literacy among the Indonesian population could lead to improved tax compliance, which is essential for increasing government revenue and promoting economic growth. Furthermore, this research emphasizes the need for educational programs aimed at enhancing financial literacy, thus fostering a culture of compliance. A qualitative approach was adopted, involving literature reviews and thematic analyses to explore taxpayer perceptions, attitudes, and behaviors regarding the 12% VAT increase. Ultimately, the success of tax policy initiatives in Indonesia is contingent upon the level of financial literacy within the community.