Investigating the Burden of Tax Compliance on Small and Medium Enterprises and Its Influence on Business Expansion and Profitability

Ponraj M; T. Gowri Shankar; M. Naga Arjun

doi:10.63363/aijfr.2026.v07i01.2919

Investigating the Burden of Tax Compliance on Small and Medium Enterprises and Its Influence on Business Expansion and Profitability

Author(s)	Dr. Ponraj M, Mr. T. Gowri Shankar, Mr. M. Naga Arjun
Country	India
Abstract	The burdens related to tax compliance, such as overly intricate processes, constantly shifting regulations, administrative redundancies, and their numerous associated costs, adversely affect the growth of Small and Medium Enterprises (SMEs). The existing body of work has failed to identify and measure the specific impacts of such operational hindrances on the growth of SMEs. This study assesses the impact of these compliance costs on operational decisions, resource allocation, and overall competitiveness within the SME sector, based on empirical, survey-based primary and appropriate secondary data. The study especially focuses on the disproportionate effect on smaller SMEs, which are comparatively less resource-endowed and, thus, cannot afford to employ specialized financial staff to manage compliance. The study also seeks to determine the linkage between stagnant, unoptimized operational levels and compliance burdens, more so on the innovation and diversification fronts, and the strategic human capital investments. The significant opportunity costs arising from direct and hidden operational profitability tax costs, compliance costs, and the myriad of unproductive profitability components necessitate a paradigm shift in the profitability model applied to SMEs. The extent of unidirectional operational tax compliance burdens, as identified in the study, maligns the tax growth potential of SMEs by a greater proportion than expected. The concluding part discusses the standardization of the tax structures, streamlining the digital systems, and providing systematized support to lessen the burden of tax compliance on SMEs while keeping revenue collection intact. The growth of small and medium enterprises positively impacts the strategic developmental goals of the economy, given that the tax policy and reforms to improve business growth are put in place.
Keywords	Tax Compliance, SMEs, Business Growth, Profitability, Regulatory Burden, Economic Growth, Policy Reform.
Published In	Volume 7, Issue 1, January-February 2026
Published On	2026-01-16
DOI	https://doi.org/10.63363/aijfr.2026.v07i01.2919
Short DOI	https://doi.org/hbk6v4

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Investigating the Burden of Tax Compliance on Small and Medium Enterprises and Its Influence on Business Expansion and Profitability

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