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

Matthieu Bellon; Era Dabla-Norris; Salma Khalid; Frederico Lima

doi:10.1016/j.jpubeco.2022.104661

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

J Public Econ. 2022 Jun:210:104661. doi: 10.1016/j.jpubeco.2022.104661.

Authors

Matthieu Bellon¹, Era Dabla-Norris¹, Salma Khalid¹, Frederico Lima¹

Affiliation

¹ The International Monetary Fund, United States.

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.

Keywords: Digitalization; Electronic invoicing; Tax compliance; VAT.