E-ISSN : 2963-4946

Vol. 2 No. March 6, 2024 https://ajosh.org/

Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1294

The Complex Dynamics of Agricultural Taxation in

Developing Countries-Insights from Indonesia

Rio Fernando Alexander

, Twee Leony Bintang Yuristine

Universitas Indonesia Depok, Indonesia

, Universitas Diponegoro Semarang, Indonesia

E-mail: rio.fernando21@ui.ac.id

, tweeleonybintang@students.undip.ac.id

*Correspondence: rio.fernando21@ui.ac.id

KEYWORDS

ABSTRACT

Agricultural taxation; Tax

compliance; Developing

countries.

Indonesia's agricultural sector plays a vital role in its

economy, contributing significantly to its Gross Domestic

Product (GDP) while facing challenges in tax revenue

collection due to the dominance of micro and small-scale

players. The research framework combines insights from

various scholarly sources, including Scopus and Google

Scholar, to provide a holistic understanding of the dynamics

of agricultural taxation. The review reveals a nuanced

landscape in which tax policy impacts market dynamics,

welfare outcomes, and historical trends in the agricultural

sector. This synthesis highlights the importance of balancing

efficiency and fairness in the tax system, given the specific

needs of agricultural producers. In addition, the analysis

delves into the complexities of tax design, emphasising the

interplay between tax rates, emissions, investments, and

perceptions of fairness. This paper identifies opportunities

for future research, including exploring regional variations in

the impact of tax knowledge, assessing the effectiveness of

tax audit approaches, and examining innovative tax

management tools for agricultural enterprises. Overall, the

study contributes to understanding the dynamics of

agricultural taxation and provides insight for policymakers

looking to optimise tax policies in developing countries.

Attribution- ShareAlike 4.0 International (CC BY-SA 4.0)

Introduction

Agriculture plays a strategic role in the Indonesian economy, serving as its

backbone and contributing significantly to the nation's economic foundation—especially

to PDB and the survival of the society (Lubis & Salsabila, 2024). The agricultural value-

added within the agricultural sector has shown a consistent upward trajectory, from 23.57

billion USD in 1960 to 143.78 billion USD by 2018 (Apip Alansori & Erna Listyaningsih,

2020). Despite the relatively high Gross Domestic Product (GDP), the agricultural sector

finds itself among the undertaxed sectors, sectors whose contribution to GDAuditP (Gross

Domestic Product) surpasses the corresponding tax revenues, alongside the construction

and the mining sector. The agricultural sector contributes 12.4 per cent to the Gross

Domestic Product (GDP), but its contribution to taxation is only 1.4 per cent (Buletin

The Complex Dynamics of Agricultural Taxation in Developing Countries - Insights

from Indonesia

Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1295

APBN, 2023).

The low contribution of the agricultural sector to Indonesia’s taxation is because

the predominant players—who simultaneously function as taxpayers—are in the micro

and small classes, making the agricultural sector one of the hard-to-tax sectors (The

Directorate General of Taxes, 2021). Most of the agricultural workers come from rural

areas (Masyhur, 2016) with poor levels of economy (according to Indonesian standards)

and sole source of income (Septiadi & Nursan, 2020). Moreover, the income of the

labourers working in the agricultural sector is meagre (Arham & Dai, 2020) due to the

low agricultural land ownership (less than 0.5 ha) per family. This condition explains why

the agricultural sector contributes truly little to Indonesia’s taxation: the more educated,

healthier, and have an average or above average standard of living, the higher the

willingness to pay more taxes (Schipor et al., 2019), while the condition in Indonesia is

far from the average.

As one of the developing countries, Indonesia also faces several problems, similar

to many other developing countries, such as unintegrated tax structures, inadequate

administration systems, and instability in economics and governance. The combination

of the characteristics of agricultural players and Indonesia’s condition made the low tax

revenue collection from the agricultural sector very reasonable.

The Uniqueness of Tax Approaches in the Agricultural Sector

Even though the food sector is vital in the economy, agricultural sectors have not

received much attention in the tax literature (Cnossen, 2018). As the world moves on,

new research shows that agricultural tax is a tool to encourage economic players in the

agricultural sector to distribute more of their resources to investment rather than personal

consumption, leading to unbiased redistribution of wealth. In recent years, there has been

increased scholarly focus on the taxation of the informal sector in developing countries.

Taxation has globally proven itself as a strategic approach for funding modern

civilisation's social and economic development, owing to its significant ability for

revenue mobilisation. Developed nations, including the United States of America, the

Netherlands, Canada, and the United Kingdom, have effectively used robust taxation

systems to generate adequate annual revenues. The conditions are different in developing

countries. Besides developing robust taxation systems, these countries could not ignore

the potential taxation sector, including the hard-to-tax-like agricultural sector.

There are four different purposes for the government to tax the agricultural sector:

(i) to generate revenues that can be utilised to finance government expenditures; (ii) to

transfer resources, particularly agricultural surplus, from the agricultural sector to non-

agricultural sectors; (iii) to foster efficiency and encourage diversification in agricultural

production; and (iv) to facilitate the redistribution of incomes within the agricultural

sector. Taxation in the agricultural sector of developing countries has proven to be a

significant source of revenue mobilisation.

However, levying taxes on the agricultural sector presents challenges, as

highlighted by Soliwoda & Pawłowska-Tyszko, 2014. Despite the inherent difficulties in

taxing the informal sector, Nasim (2012) proposed two different strategies for taxing the

agricultural sector: (1) imposing a tax on cultivated land and (2) implementing a tax on

agricultural income. This strategy has different perspectives from the European Union,

where the European Union is trying to tax the agricultural sector through the value-added

tax (VAT) with three different options for VAT treatment. Explicit taxes on agricultural

producers are included in (1) direct taxes on income, whether actual or presumed,

individuals (heads of households), and personal movable and immovable wealth or

Rio Fernando Alexander, Twee Leony Bintang Yuristine

Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1296

property, with a particular focus on agricultural land; and (2) indirect taxes, including

sales taxes (such as GST and VAT), turnover tax, excises, stamp duties, cesses applied to

specific products, customs duties, and export taxes.

Additionally, Soliwoda and Pawłowska-Tyszko (2014) categorise revenue, income,

and property taxes as the primary types of agricultural taxes. According to these authors,

revenue tax is realised when tax is imposed on cultivation and land ownership proceeds.

The tax is contingent on gross revenue, encompassing all proceeds without deducting

incurred expenses. Farmers are bound to pay the revenue tax irrespective of whether they

generate a surplus from their enterprise.

On the other hand, property tax is levied based on the size of agricultural land,

implying that larger farm sizes incur higher taxes and vice versa. Furthermore, income

tax is imposed according to the farmer's income group. Maintaining a robust financial

record eases the exact assessment and imposition of income tax, enabling farmers to

manage the tax burden effectively.

In the context of Ghana, efforts to stimulate investment in economically

disadvantaged regions involve reducing tax rates as incentives for agro-processing and

manufacturing enterprises. Furthermore, companies working in designated free zones

enjoy ten years of tax holidays. In Ghana, specific durations of tax exemptions are granted

to agro-processing enterprises, tree crops, and livestock farming, amounting to three, ten,

and five years, respectively.

Research Methods

The paper aims to see different perspectives on some factors in tax compliance and

then reflect on Indonesia’s agricultural conditions. The selected factors are economic

factors and non-economic factors.

The literature search was confined to the Scopus database, a resource subscribed to

and provided by the author’s university library, chosen for its reputation and high quality.

Scopus is widely used as one of the primary sources when conducting literature reviews

(Casino et al., 2019). The Scopus database was selected to ensure a comprehensive

coverage of relevant articles. The search was not constrained by any specified period to

avoid limiting the opportunity to incorporate relevant studies into the literature review.

The author conducted the search using keywords such as ”farmer AND tax AND

compliance,”” informal AND tax AND compliance,” or ”informal AND tax AND

compliance AND factors.” The total search resulted in 192 published articles. After

removing duplicate entries, this procedure yielded a preliminary sample of 180 published

articles. To ensure the quality and relevance of the research, the author applied filtering

by keeping only those articles published in journals listed in either the "Accounting,"

The Complex Dynamics of Agricultural Taxation in Developing Countries - Insights

from Indonesia

Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1297

"Finance," “Economics,” or “Social Sciences” subsections, which leads to 175

publications. Because the author is focusing on influencing factors in the agricultural

sector, the author excluded all articles that were either out of the scope (-37), not empirical

(-15), and did not fit the criteria (-7). The author then chooses the articles manually by

analysing the titles/abstracts and the contents, which leads to 4 final articles.

Moreover, to enrich the literature, the author uses Google Scholar as the added

source since this paper uses five factors as the literature reviews, where each factor is

taken from at least four papers, which leads to 20 final papers.

Results and Discussions

Summary from earlier literature

A farmer is an individual engaged in agriculture, primarily in managing land to

cultivate and maintain crops such as rice, fruits, flowers, and others. This activity is

carried out with the expectation of obtaining yields from these crops for personal use or

sale to others. Farmers may also provide various raw materials for industries, such as

fruits for juice, cereals for alcoholic beverages, and wool or cotton for weaving and

clothing manufacturing.

Research on Indonesia A farmer is an individual engaged in agriculture, primarily

in managing land to cultivate and maintain crops such as rice, fruits, and flowers. This

activity is carried out with the expectation of obtaining yields from these crops for

personal use or sale to others. Farmers may also provide various raw materials for

industries, such as fruits for juice, cereals for alcoholic beverages, and wool or cotton for

weaving and clothing manufacturing. The agricultural tax has shown mixed effects on the

market. (Dewanti & Purna, 2022) The tax decreased demand, imports, and exports but

increased sales and welfare for the country. (Setiawan et al., 2020) A value-added tax

(VAT) on the agricultural sector could positively impact the economy if the revenue is

distributed to people experiencing poverty. Highlighted the decline in the importance of

the land tax in British India and Dutch Indonesia and the potential impoverishment of

cultivators. (Montgomery et al., 2002) discussed the deregulation of Indonesia's

interregional agricultural trade, eliminating distorting taxes and levies and leading to

higher accurate prices for farmers.

The newest regulations show that agricultural products are included in the taxable

goods handed over by groups of farmers to buyers. Therefore, agricultural products are

subject to VAT following applicable regulations. Based on Minister of Finance

Regulation (PMK) Number 64/PMK.03/2022, VAT collection on the delivery of certain

agricultural goods from farmer groups (PKP) is subject to a rate of 1.1% of the selling

price. The amount of VAT collection is obtained by multiplying 10% of the applicable

VAT rate, resulting in 11%.

Horticultural agricultural products are categorised into various types. Firstly,

Taxable Goods (BKP) include ornamental and medicinal plants. Secondly, Non-Taxable

Goods (Non-BKP) involve food crops such as rice, peanuts, corn, rice, cassava, and

unhusked rice. Meanwhile, another Non-BKP comprises necessities like fruits and

vegetables.

All plantation products subjected to the 1.1% VAT DPP fall under the Taxable

Goods category. Examples of such plantation products include cocoa, coffee, palm sugar,

cashews, mace, pepper, cloves, tea, rubber, cotton, tobacco, kapok, cinnamon, vanilla,

quinine, patchouli, essential oils, lemongrass, and coconuts.

For forestry products, there are two types subject to a 1.1% VAT DPP rate:

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1. Timber Forest products, including round logs of sawdust wood, dried round logs, latex

round logs, and large or small round logs.

2. Non-timber forest products include original rattan, gubal agarwood, WS round rattan,

kamendangan, candlenuts, tengkawang seeds, and damar copal.

Synthesis and areas for future research

The research on Indonesia's agricultural tax landscape presents a nuanced picture

with mixed effects on the agricultural market. (Dewanti & Purna, 2022) Find that the

imposition of agricultural tax led to a decrease in demand, imports, and exports, but

paradoxically resulted in increased sales and improved welfare for the country. This

suggests a complex interplay of market dynamics influenced by the tax policy. (Setiawan

et al., 2020) Contribute to the discussion by suggesting that a value-added tax (VAT) on

the agricultural sector could have positive impacts, mainly if the generated revenue is

effectively distributed to people experiencing poverty. This perspective emphasises the

importance of considering the broader socio-economic implications of tax policies.

Introduces the idea of deregulation in Indonesia's interregional agricultural trade,

emphasising the positive outcomes of eliminating distorting taxes and levies. The

deregulation resulted in higher accurate prices for farmers, indicating the potential

benefits of removing obstacles in the form of certain taxes on agricultural trade.

In summary, the research on Indonesia's agricultural tax landscape reveals a

complex interplay of effects on the market, welfare, and historical trends. The recent

regulations introducing VAT on certain agricultural goods highlight the ongoing efforts

to refine tax policies in the agricultural sector. It remains essential for policymakers to

carefully consider the multifaceted impacts of taxation on farmers, market dynamics, and

overall economic welfare to ensure that tax policies contribute positively to the

sustainable development of Indonesia's agricultural sector.

Summary from earlier literature

Tax knowledge in agriculture is a complex and multifaceted issue with implications

for individual farmers and the sector. Research shows that there should be an emphasis

on the need for a tax system that balances efficiency and equity, considering the specific

characteristics of the agriculture industry highlight the significant impact of tax policy on

farmers' decision-making and the supply and prices of agricultural commodities. These

studies underscore the importance of understanding and effectively managing agricultural

tax implications.

In the self-assessment system, the fact that tax knowledge is the critical determinant

of voluntary tax compliance is undeniable among researchers (Sebele-Mpofu & Chinoda,

2019). Farmers’ tax knowledge in Ethiopia has significantly correlated with the tax-

compliant attitude (Azime & Ramakrishna, 2018). The same result is also shown among

the commercial sugarcane farmers in Zimbabwe, where a lack of tax knowledge and

understanding has a significant relationship with non-compliance in tax payments .

Positive effects are also shown in the poultry farmers in Ghana, where tax knowledge (or

tax awareness as mentioned in the journal) is one of the three main factors that could

influence their willingness to pay (Sebele-Mpofu & Chinoda, 2019).

Analysis and future research to be explored

The existing research underscores the intricate nature of taxation in agriculture,

emphasising the necessity for a tax system that balances efficiency and equity,

considering the industry's unique characteristics. These insights stress the importance of

comprehending and effectively managing agricultural tax implications. Furthermore,

within the self-assessment system, tax knowledge emerges as a pivotal factor influencing

The Complex Dynamics of Agricultural Taxation in Developing Countries - Insights

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voluntary tax compliance among farmers (Sebele-Mpofu & Chinoda, 2019). Studies in

Ethiopia and Zimbabwe reveal a significant correlation between farmers' tax knowledge

and compliance attitudes and behaviours (Azime & Ramakrishna, 2018). Positive effects

are also noted in Ghana, where tax knowledge plays a crucial role in influencing the

willingness of poultry farmers to pay taxes.

For future research, there is a need to delve deeper into designing tax policies that

address the specific needs of the agriculture sector, explore regional and sectoral

variations in the impact of tax knowledge, and consider innovative approaches to tax

education. Longitudinal studies tracking changes in tax knowledge and compliance,

coupled with collaboration between researchers and policymakers, can contribute to

refining strategies and policies for better outcomes in the agriculture taxation landscape.

Summary from earlier literature

One of the main problems in developing countries is poor administration and

unintegrated tax structures. Even with data gathered from public institutions, the data

probably differs from reality and does not reflect the actual condition. Albania has an

unclear data challenge where farmers' lack of registration makes the agricultural sector's

taxation difficult to measure the effective government incentive or define fiscal incentive.

To solve this problem, countries like EU member states have already developed a

Land Parcel Identification System (LPIS) as part of the Integrated Administration and

Control Systems (Kocur-Bera, 2020) for various purposes, including the calculation of

taxes (Regulation, 1989). This LPS, then widely adopted by Poland as the National

Registration System of Agricultural Products, consists of three main components:

Applications (Kocur-Bera, 2020).

Analysis and future research to be explored

The challenge of poor administration and unintegrated tax structures in developing

countries, as outlined by Tesfaye (2015), reflects a broader issue of information

asymmetry and ineffective governance. The disparity between officially gathered data

and the actual conditions on the ground, as emphasised, not only complicates tax

assessment but also hampers the formulation of targeted policies that address the specific

needs of the agricultural sector.

In the case of Albania, the lack of farmer registrations adds another layer of

complexity to the taxation landscape. This impedes measuring government incentives'

effectiveness and makes it challenging to design fiscal policies that foster sustainable

agricultural development. The consequences of such gaps in data are significant,

potentially leading to inefficient resource allocation, misdirected subsidies, and an overall

lack of precision in economic planning.

The European Union's successful implementation of the Land Parcel Identification

System (LPIS), as noted (Kocur-Bera, 2020), stands out as a proactive solution to these

challenges. The integration of LPIS into the broader framework of Integrated

Administration and Control Systems streamlines tax calculations and enhances

transparency and accountability. Poland's adoption of LPIS in its National Registration

System of Agricultural Products is a noteworthy example of how a well-designed

information system can address data challenges in agriculture.

Moreover, beyond tax calculations, the LPIS provides a valuable tool for land

management and agricultural planning. It enables policymakers to make informed

decisions about resource allocation, environmental sustainability, and rural development.

The three main components of Poland's system - the Register of Farms, the Register of

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Agricultural Producers, and the Register of Payment Applications - create a

comprehensive database that facilitates holistic policy approaches.

For other developing countries facing similar challenges, the EU's model offers

insights into the transformative potential of integrated information systems. As seen in

the Register of Agricultural Producers, establishing accurate and up-to-date databases

through farmer registrations lays the groundwork for effective policy implementation.

Furthermore, the success of LPIS emphasises the importance of a holistic approach to

data management, encompassing multiple facets of the agricultural sector.

In conclusion, addressing the challenges of poor administration and data

discrepancies in taxation requires a multifaceted approach. Integrating systems like LPIS

enhances tax assessment and contributes to more effective and targeted policymaking,

ultimately fostering sustainable development in the agricultural sector of developing

countries.

Summary from earlier literature

(Chodorow, 2006) argues that any income-based tax, including those applied to

agricultural produce, will inherently be complex due to the challenges of defining income,

addressing tax avoidance, and managing timing issues. (Freebairn, 1995) further

complicates the issue by highlighting the difficulty of assessing the efficiency properties

of agricultural taxation, given the various bases for taxing capital income. It adds a

psychological dimension, suggesting that tax complexity can negatively impact

perceptions of equity, particularly when no explicit justification is provided. Finally,

(Boehlje Carman, 1982b) underscores the significant role of taxes in shaping the decision-

making of agricultural producers, with changes in tax rules expected to have a substantial

impact on savings, investment behaviour, and supply and prices of agricultural

commodities.

Analysis and future research to be explored

Chodorow, (2006). The argument that income-based taxes on agricultural produce

are inherently complex resonates with the broader discourse on tax complexity, which

has significant implications for the agricultural sector. Defining income in the context of

agriculture poses unique challenges due to the variability of revenue streams, the

valuation of produce, and the dynamic nature of farming operations. This complexity is

exacerbated by difficulties addressing tax avoidance strategies and navigating timing

issues specific to agricultural cycles.

Contributes to this discussion by highlighting the complexity associated with

assessing the efficiency properties of agricultural taxation. The varied bases for taxing

capital income in the agricultural sector add layers of intricacy, making it challenging to

determine the most effective and equitable taxation approach. The nuanced nature of

agricultural income, influenced by crop yields, market fluctuations, and input costs,

requires carefully examining taxation mechanisms to ensure both efficiency and fairness.

(Cuccia & Carnes, 2001) Introduce a psychological dimension to the analysis,

emphasising that tax complexity can negatively impact perceptions of equity, mainly

when justifications for such complexities are not explicitly provided. In the context of

agricultural taxation, where farmers' livelihoods are directly affected, the perceived

fairness of the tax system becomes crucial. A lack of transparency and clear justification

for complex tax structures may erode trust and support for taxation policies in the

agricultural community and the broader public.

Emphasis on the significant role of taxes in shaping the decision-making of

agricultural producers further underscores the importance of considering complexity

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Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1301

perceptions. Tax rule changes can profoundly impact farmers' savings, investment

behaviour, and the supply and prices of agricultural commodities. Complex tax structures

may introduce uncertainties and challenges in decision-making processes, potentially

affecting the long-term sustainability and competitiveness of the agricultural sector.

In integrating these perspectives, it becomes evident that tax complexity in

agriculture goes beyond the technical intricacies of income definition and efficiency

assessments. It extends to psychological and behavioural dimensions, influencing how

farmers perceive the tax system's fairness and make crucial decisions about their

operations. To improve the design and acceptance of agricultural taxation, policymakers

should address technical complexities and prioritise clear communication, transparency,

and justifications for the intricacies involved. A holistic approach considering tax

complexity's economic and psychological aspects is essential for building a tax system

supporting a vibrant and sustainable agricultural sector.

Summary from earlier literature

Research on the tax rate in agriculture reveals a complex relationship between

taxation, emissions, and investment. (Mardones & Lipski, 2020) Finds that a tax on

agricultural emissions can reduce production and GDP, suggesting that a broader tax

approach may be more effective. Moreover, (Andrejovská et al., 2019) emphasise the

importance of effective average tax rates in assessing the financial impact on capital

investment and taxation efficiency in agricultural businesses. (Freebairn, 1995)

underscores the need for a progressive income tax rate schedule to achieve social equity,

highlighting the complexity of tax design in the agricultural sector. (Petrukha &

Nazukova, 2015) Both emphasise the importance of effective average tax rates in

assessing the financial impact on capital investment and taxation efficiency in agricultural

businesses.

Analysis and future research to be explored

The research on tax rates in agriculture reveals a multifaceted relationship involving

taxation, emissions, and investment, with implications for economic production and

social equity. (Mardones & Lipski, 2020) Provide insights into the intricate dynamics by

suggesting that a tax explicitly targeting agricultural emissions can adversely affect

production and GDP. This finding implies the need for a more comprehensive and

nuanced approach to agricultural taxation, considering broader factors beyond emissions

alone.

Contribute to the discourse by emphasising the significance of effective average tax

rates in evaluating the financial impact on capital investment and the overall efficiency

of taxation in agricultural businesses. This underscores the importance of considering the

nominal tax rates and their practical implications on investment decisions and economic

outcomes. Therefore, the efficiency of taxationeeeeeeeeee in the agricultural sector is

intricately tied to how tax rates influence the financial decisions and behaviours of

farmers and businesses.

(Freebairn, 1995) advocacy for a progressive income tax rate schedule in

agriculture adds another layer to the complexity of tax design. While the call for

progressivity aligns with social equity goals, it introduces challenges in balancing the

fiscal needs with the economic realities of the agricultural sector. Crafting a tax structure

that fosters equity while supporting the economic viability of farms requires careful

consideration of various factors, including income distribution, farm sizes, and the

diversity of agricultural operations.

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Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1302

Integrating these perspectives reveals a delicate balance that policymakers must

strike in designing effective tax rates for agriculture. As suggested by (Mardones and

Lipski, 2020), a broader tax approach may be necessary to address diverse environmental

and economic considerations. Meanwhile, the focus on effective average tax rates,

highlighted by (Andrejovská et al., 2019), emphasises the practical implications of tax

policies on investment decisions, economic efficiency, and the overall health of

agricultural businesses.

Summary from earlier literature

A range of studies have explored the tax audit process in the agricultural sector.

Emphasises the need for tax auditors to adopt a more collaborative approach, focusing on

education and communication with taxpayers. (Kotsupatryi et al., 2019) further

underscores the importance of tax audit efficiency and effectiveness, particularly in

detecting and addressing violations. (Reshetnyak et al., 2020) Highlight the complexity

of tax design and the potential for tax management tools to reduce the tax burden and

improve financial results in the agricultural sector. These studies underscore the need for

a balanced and practical tax audit approach in the agricultural industry.

Analysis and future research to be explored

As highlighted by various studies, the exploration of the tax audit process in the

agricultural sector reveals essential insights into the dynamics of taxation, compliance,

and financial management. It highlights the necessity of a collaborative approach in tax

auditing, emphasising the importance of education and communication between tax

auditors and taxpayers. This perspective recognises the significance of fostering a

cooperative environment that promotes understanding and compliance rather than solely

relying on punitive measures.

(Kotsupatryi et al., 2019) adds another layer to the discussion by emphasising the

critical role of tax audit efficiency and effectiveness. The focus here is on detecting and

correcting violations within the agricultural sector. Efficient tax audits ensure compliance

with tax regulations and contribute to the tax system's overall integrity. This perspective

aligns with the idea that a well-functioning tax audit process is crucial for maintaining

fairness and equity in taxation.

Moreover, both draw attention to the complexity of tax design in the agricultural

sector. They highlight the potential for tax management tools to play a role in reducing

the tax burden and improving financial results for agricultural businesses. This

underscores the need for a nuanced understanding of tax policies and the implementation

of tools that align with the unique characteristics of the agricultural industry. Effective

tax management can enhance compliance and contribute to the financial sustainability of

agricultural enterprises.

Conclusion

This literature review concludes that although research on taxation has increased in

recent years, particularly within the agricultural sector, research specific to the

agricultural sector is still very limited compared to other sectors. However, certain factors,

such as the national registration system of agricultural products, different tax rate options,

buyer assistance, and tax knowledge through fertiliser incentives, are estimated to

correlate with tax compliance strongly.

The literature review also highlighted the growing role of agricultural taxation as a

tool for economic development and wealth redistribution. Recent research emphasises the

importance of agricultural taxation in diverting resources to investment rather than

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Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1303

personal consumption. The government seeks to obtain revenue, transfer resources to the

non-agricultural sector, increase efficiency, and distribute revenue within the sector. Tax

audits are becoming a vital tool for regulators in improving tax compliance, primarily

through the application of technology. The prospect of a tax audit is a deterrent,

encouraging taxpayers to comply with tax regulations to avoid legal consequences.

Meanwhile, future research should expand the scope of research to understand tax

compliance in the agricultural sector further so that the results can be more accepted and

valid in general.

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Asian Journal of Social and Humanities, Vol. 2 No. March 6, 2024 1304

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