Digitizing Tax Enforcement: Evidence from a Point-of-Sale VAT Compliance Reform in Pakistan

• In Event: Taxes and Firms in Developing Countries

Abstract

Pakistan has been a country mired in considerable fiscal challenges historically, a major reason being one of the lowest tax-to-GDP ratios (9-10%) compared to the regional and global averages. As part of its efforts to fight tax evasion, starting August 2021, the federal tax agency in Pakistan initiated a country-wide policy to integrate the point-of-sale (POS) systems of eligible retailers with the tax agency’s database. The scheme has been rolled out over a period of several months since its inception and by the end of the financial year 2024, more than 10,000 retailers had undergone POS-integration with the tax agency. This project exploits the country-wise tax administrative database to study the effects of this time-varying treatment roll-out on the sales reporting and VAT payments declared by the treated firms. Initial event study designs for the earlier treated firms show sales reporting to have increased in the range of 150 to 450 percent and VAT payments to have increased in the range of 30 to 150 percent for the integrated firms. I am currently expanding the empirical analysis to include several robustness checks. I am also exploring heterogeneity based on differences in firms’ locations, types of business and industry sector. The study’s findings will be of immense value to both policy makers and practitioners in the context of a developing country’s experimentation with tax enforcement technology.

Author

• Bahawal Shahryar, bshahrya@iu.edu