## Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru

_IMF Working Papers, March 18, 2022_

## Source details

**Canonical URL:** [Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru](https://www.imf.org/en/publications/wp/issues/2022/03/18/digitalization-and-tax-compliance-spillovers-evidence-from-a-vat-e-invoicing-reform-in-peru-515162)

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## Bibliographic details
- Authors: Matthieu Bellon, Era Dabla-Norris, Salma Khalid, Juan Carlos Paliza, Jillie Chang, Pilar Villena
- Published: March 18, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400204876.001

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### Summary
- Study uses administrative data on firm-to-firm transactions and quasi-experimental variation in the rollout of electronic invoicing reforms in Peru to analyze diffusion of e-invoicing through firm networks and effects on tax compliance.
- Voluntary e-invoicing adoption is higher among firms with partners mandated to adopt e-invoicing, indicating positive technology adoption spillovers.
- Spillovers are stronger from downstream partners and from export-oriented firms.
- Firms are less likely to continue transacting with a partner who has been mandated into e-invoicing; the effect is only partially reversed if both firms adopt e-invoicing, suggesting possible network segmentation.
- Smaller firms who transact with partners mandated into e-invoicing report 11 percent more sales and pay 17 more VAT in the year that their partner is mandated to adopt e-invoicing, indicating positive spillovers in tax compliance behavior for this subset.

### Key findings and evidence
- Voluntary adoption:
  - Firms with mandated partners show higher voluntary e-invoicing adoption (positive technology adoption spillovers).
- Directional and firm-type heterogeneity:
  - Spillovers are stronger from downstream partners.
  - Spillovers are stronger from export-oriented firms.
- Network effects on transactions:
  - Mandating a partner into e-invoicing reduces the likelihood that a firm continues transacting with that partner.
  - If both firms adopt e-invoicing, the reduction in continuing transactions is only partially reversed, consistent with network segmentation dynamics.
- Tax compliance outcomes for smaller firms:
  - Smaller firms transacting with mandated partners report 11 percent more sales in the mandate year.
  - These smaller firms pay 17 more VAT in the mandate year.

### Mechanisms and interpretation
- Technology adoption spillovers: observed increases in voluntary e-invoicing uptake among firms connected to mandated partners imply diffusion through commercial networks.
- Compliance spillovers: increased reported sales and VAT payments among smaller firms linked to mandated partners are consistent with positive spillovers in tax reporting/compliance behavior.
- Network segmentation risk: reduced continuation of transactions with mandated partners, and only partial reversal when both adopt, imply that digital mandates can reshape transaction networks and potentially segment markets.

### Policy implications
- Digitalization as a compliance tool:
  - E-invoicing mandates can generate positive adoption and tax-compliance spillovers beyond directly targeted firms.
- Attention to network effects:
  - Policymakers should monitor potential network segmentation resulting from mandates, as some trading relationships may be discontinued.
- Targeting and complementarities:
  - Stronger spillovers from downstream and export-oriented firms suggest considering the position and characteristics of firms when designing phased rollouts.
- Support for smaller firms:
  - Given observed compliance gains among smaller firms connected to mandated partners, policies could combine mandates with assistance to small firms to capture benefits while mitigating adjustment costs.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2022/03/18/digitalization-and-tax-compliance-spillovers-evidence-from-a-vat-e-invoicing-reform-in-peru-515162_