Digitalization to improve tax compliance: Evidence from VAT e-Invoicing in Peru

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.(c) 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

Automated summary

This paper examines the impact of switching from paper to electronic invoicing on firm tax compliance and performance using quasi-experimental variation. The study finds that e-invoicing increases reported firm sales, purchases, and VAT liabilities, particularly among small firms and sectors with higher rates of noncompliance. However, existing VAT credits offset the positive effects of the reform on VAT collection, suggesting the need for complementary reforms to improve revenue mobilization.