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Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax

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  • Waseem, Mazhar

Abstract

I leverage a Pakistani tax reform that cuts the tax rate on the supply chains of five major industries of the country from 15% to 0% to cast light on the extent of, and mechanisms driving, VAT noncompliance in a representative emerging economy. I find that firms overclaim refunds by 22% and underreport domestic B2C sales by 43.5%. Together, this implies an evasion rate of 77% in the treated industries and 38% in the population. I explore the role of three mechanisms (1) the destination principle, (2) the last-mile problem, and (3) invoice mills in driving this noncompliance.

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  • Waseem, Mazhar, 2020. "Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax," CEPR Discussion Papers 14601, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14601
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    Cited by:

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    4. Garriga, Pablo & Tortarolo, Dario, 2024. "Firms as tax collectors," Journal of Public Economics, Elsevier, vol. 233(C).
    5. Sixia Chen & Yuan Fang & Shengfeng Lu & Haotian Zhang, 2024. "Tackle spurious invoices challenges to VAT compliance: a quasi-experiment of input VAT deduction reform in China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(5), pages 1342-1387, October.
    6. Kowsar Yousefi & Mohammad Vesal, 2023. "The Double Dividend of a Joint Tariff and VAT Reform: Evidence from Iran," The World Bank Economic Review, World Bank, vol. 37(2), pages 331-349.
    7. Bohne, Albrecht & Koumpias, Antonios M. & Tassi, Annalisa, 2023. "Cashless payments and tax evasion: Evidence from VAT gaps in the EU," ZEW Discussion Papers 23-060, ZEW - Leibniz Centre for European Economic Research.
    8. Bibler, Andrew & Grigolon, Laura & Teltser, Keith & Tremblay, Mark, 2024. "Identifying Tax Compliance from Changes in Enforcement: Theory and Empirics," CEPR Discussion Papers 18805, C.E.P.R. Discussion Papers.
    9. Giulia Mascagni & Roel Dom & Fabrizio Santoro & Denis Mukama, 2023. "The VAT in practice: equity, enforcement, and complexity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 525-563, April.
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    More about this item

    Keywords

    Vat; Tax evasion; Firm behaviour;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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