Enhancing Tax Compliance in the Dominican Republic Through Risk-based VAT Invoice Management

IMF Working Papers, September 10, 2021

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Invoices document economic transactions and are critical to assess tax liabilities.
The paper studies a reform in the Dominican Republic that integrated invoice management into a broader, risk-based compliance strategy.
The reform rationed authorized invoices based on an extra scrutiny of each taxpayer’s compliance history.
The reform produced significant and persistent improvements on filing, payment, and information reporting obligations and a modest increase in reported tax liabilities.
The study finds that deterrence effects over compliance behaviors are strengthened when the tax administration makes explicit and active use of taxpayers’ information, regardless of whether the invoicing framework is paper-based or electronic.

Rationing authorized invoices using taxpayers’ compliance history led to:
- Significant and persistent improvements in filing obligations.
- Significant and persistent improvements in payment obligations.
- Significant and persistent improvements in information reporting obligations.
- A modest increase in reported tax liabilities.
Deterrence effects are reinforced when the tax administration actively uses taxpayer information.
The strengthening of compliance holds in both paper-based and electronic invoicing frameworks.

Integrate invoice management into a broader, risk-based compliance strategy to strengthen compliance outcomes.
Use taxpayers’ compliance histories explicitly and actively when determining access to authorized invoices to enhance deterrence.
Apply similar risk-based invoice rationing approaches in both paper-based and electronic invoicing environments to yield compliance gains.
Focus on enforcement designs that link information access/authorization to demonstrated compliance behavior to achieve persistent improvements in filing, payment, and reporting.