Journal
JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume 189, Issue -, Pages 172-193Publisher
ELSEVIER
DOI: 10.1016/j.jebo.2021.06.007
Keywords
Tax compliance; Technology; Tax administration
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This study, based on the case of Ethiopia, found that the adoption of electronic sales registration machines has a positive impact on increasing tax revenue, primarily through enhancing taxpayer compliance. However, taxpayers respond to these changes by adjusting reported sales and costs simultaneously.
The widespread introduction of ICTs and digitised data management systems is one of the most important developments amongst African tax administrations in recent years. However, very little evidence is available on their effectiveness to increase compliance and on how taxpayers respond to these changes. This paper starts filling this gap by reporting three sets of results from Ethiopia. First, we evaluate the impact of a technological innovation, the adoption of electronic sales registration machines, on taxpayers' self reports. We find a positive impact on tax revenue, which increases by at least 12% for income taxes and 48% for VAT. However, taxpayers respond by simultaneously adjusting both reported sales and costs, thus yielding net revenue gains that are proportionally lower than the increase in sales. Second, we use a letter experiment to show that the main mechanism through which the machines increase tax revenue is compliance, rather than any change in real business activity. Third, we document how the revenue administration does not make use of available data to its full potential, as many discrepancies remain undetected. However, machine adoption improves the accuracy of those taxpayer records, reducing dicrepancies. (c) 2021 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license ( http://creativecommons.org/licenses/by-nc-nd/4.0/ )
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