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Digitalization to Improve Tax Compliance: Evidence from VAT E-Invoicing in Peru
Abstract: This paper examines the impact of switching from paper to electronic invoicing on firm tax compliance and performance using quasi-experimental variation in the roll-out of VAT e-invoicing in Peru. We find that e-invoicing increases reported firm sales, purchases and VAT liabilities by over 5 percent in the first year after adoption. The impact is concentrated among small firms and sectors with higher rates of noncompliance, suggesting that e-invoicing enhances compliance by lowering compliance costs and strengthening deterrence. However, we also find that existing stocks of VAT credits were used to offset the reform’s positive effects on VAT collection, suggesting that digital tools such as e-invoicing would need to be complemented by other reforms to improve revenue mobilization.
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Citation: Bellon, Matthieu, Era Dabla-Norris, Salma Khalid, and Frederico Lima. “Digitalization to Improve Tax Compliance: Evidence from VAT e-Invoicing in Peru.” Journal of Public Economics 210 (June 2022): 104661. https://doi.org/10.1016/j.jpubeco.2022.104661.
The Customer is King: Evidence on VAT Compliance in Tanzania
Abstract: Value Added Tax (VAT) has emerged as one of the main modes of raising tax revenue worldwide, but has significantly underperformed as a revenue source in African countries. To improve compliance, Tanzania has introduced Electronic Fiscal Devices (EFDs), which automatically transmit information about business transactions to the tax administration. However, VAT collection has not improved as expected. In this paper, we examine EFD compliance and identify factors that influence it. An innovation in this study is the direct observation of EFD usage: our enumerators waited for customers departing from business premises, and then checked their receipts, interviewed them and interviewed the businesses. This design enabled us to observe each business’s actual compliance in issuing EFD receipts, thus mitigating the problem of dishonest reporting of compliance, which is common in self-reported survey data. We find that EFD compliance is associated not only with the business’s perception of other businesses’ compliance and its satisfaction with public services, but also, and more strongly, with the customer’s perception of detection and penalty risks.
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Citation: Fjeldstad, Odd-Helge, Cecilia Kagoma, Ephraim Mdee, Ingrid Hoem Sjursen, and Vincent Somville. “The Customer Is King: Evidence on VAT Compliance in Tanzania.” World Development 128 (April 2020): 104841. https://doi.org/10.1016/j.worlddev.2019.104841.
The Costs of VAT: A Review of the Literature
Abstract: This paper reviews the published literature on the definition and measurement of the administrative and compliance costs of taxation, with special reference to VAT (including evasion and fraud) in the European Union.
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Citation: Barbone, Luca, Richard M. Bird, and Jaime Vázquez Caro. “The Costs of VAT: A Review of the Literature.” SSRN Electronic Journal, Case Network Reports No. 106/2012, 2012. https://doi.org/10.2139/ssrn.2024880.
VAT Fraud and Evasion: What Do We Know and What Can Be Done?
Abstract: Like any tax, the VAT is vulnerable to evasion and fraud. But its credit and refund mechanism offers unique opportunities for abuse, and this has recently become an urgent concern in the European Union (EU). This paper describes the main forms of noncompliance distinctive to a VAT, considers how they can be addressed, and assesses evidence on their extent in high-income countries. While the practical significance of current difficulties in the EU should not be overstated, administrative measures alone may prove insufficient to deal with them, and a fundamental redesign of the VAT treatment of intra-community trade may be required. The current difficulties in the EU largely reflect circumstances that would not apply in the U.S.
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Citation: Keen, Michael, and Stephen Smith. “VAT Fraud and Evasion: What Do We Know and What Can Be Done?” National Tax Journal 59, no. 4 (2006): 861–87. https://doi.org/10.17310/ntj.2006.4.07.
Do Audits Enhance Compliance? An Empirical Assessment of VAT Enforcement
Abstract: Research on the effects of audits on individual compliance has been inconclusive. In this paper, we analyze for the first time VAT tax return information and enforcement data to assess the impact of audits on subsequent compliance of taxpayers in Argentina and Chile. The evidence of this unique data set shows that audits have the undesired effect of furthering noncompliance behavior among cheaters but a more positive effect among those prone to compliance. Descriptive and multivariate analysis supports the assumption that the effects of additional assessments on individuals are offset by higher subsequent evasion presumably to compensate for taxpayers costs incurred in audits.
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Citation: Bergman, Marcelo, and Armando Nevarez. “Do Audits Enhance Compliance? An Empirical Assessment of VAT Enforcement.” National Tax Journal 59, no. 4 (2006): 817–32. https://doi.org/10.17310/ntj.2006.4.04.