nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒05‒11
one paper chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax By Mazhar Waseem

  1. By: Mazhar Waseem
    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.
    Keywords: VAT, tax evasion, firm behavior
    JEL: H25 H26 H32
    Date: 2020

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