Work

What you do (not) get when expanding the net - Evidence from forced taxpayer registrations in South Africa

Year: 2024

Type: article

Abstract: A significant share of firms in developing countries is not registered for income taxation. Expanding the tax net is a priority for many governments, but most formalization policies proved ineffective in bringing firms into the tax net. Drawing on tax administrative data, we document that snapshot-synchronizations of the business tax and the commercial registry in South Africa led to a large-scale expansion of the South African taxpayer net. While the targeted firms are a valuable segment within the non-formal sector, we show that their post-registration tax compliance is weak and few of them pay taxes. Owing to the large scope of the net expansion, the aggregate revenue gains are, nevertheless, non-negligible and the interventions are fiscally cost-effective. Additionally, we provide evidence for enforcement spillovers: In areas, where many firms were drawn into the tax net, registration compliance significantly improved after the synchronizations, while registrations at the commercial registry moderately declined.

Source: Journal of Development Economics

DOI: 10.1016/j.jdeveco.2024.103388

Authors: Collen Lediga, Nadine Riedel, Kristina Strohmaier

Institutions: University of Münster, University of Oxford, University of Duisburg-Essen

Language: English

Topic: Taxation and Compliance Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Peace, justice, and strong institutions, Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,190