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

Digitalization and Tax Compliance Spillovers Evidence from a VAT e-Invoicing Reform in Peru Matthieu Bellon, Jillie Chang, Era Dabla-Norris, Salma Khalid, Juan Carlos Paliza, and Pilar Villena WP/22/57 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. 2022 MAR *We are deeply indebted to SUNAT for providing data. We thank seminar participants at SUNAT, NTA, and the IMF for helpfulcomments and discussions. This research study was supported by funding from the Bill and Melinda Gates Foundation. Theviews expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management. © 2022 International Monetary Fund WP/22/27IMF Working Paper Asia and Pacific Department Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru Prepared by Matthieu Bellon, Jillie Chang, Era Dabla-Norris, Salma Khalid, Juan Carlos Paliza, and Pilar Villena* Authorized for distribution by Era Dabla-Norris March 2022 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. ABSTRACT: Our study uses administrative data on firm-to-firm transactions and quasi- experimental variation in the rollout of electronic invoicing reforms in Peru to study the diffusion of e-invoicing through firm networks and its effect on tax compliance. We find that voluntary e-invoicing adoption is higher amongst firms with partners who are mandated to adopt e-invoicing, implying 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, with the effect only partially reversed if both firms adopt e-invoicing, suggesting that network segmentation may occur. 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, suggesting positive spillovers in tax compliance behavior for this subset of firms. JEL Classification Numbers: D22, H25, H26, L25, O17, L14 Keywords: VAT, tax compliance, technology spillovers, firm transaction data Authors’ E-Mail Address: Bellon: mbellon@imf.org; Chang: jchang@sunat.gob.pe; Dabla-Norris: edablanorris@imf.org; Khalid: skhalid@imf.org; Paliza: jpaliza@sunat.gob.pe; Villena: pvillena@sunat.gob.pe WORKING PAPERS Digitalization and Tax Compliance Spillovers Evidence from a VAT e-Invoicing Reform in Peru Prepared by Matthieu Bellon, Jillie Chang, Era Dabla-Norris, Salma Khalid, Juan Carlos Paliza, and Pilar Villena IMF WORKING PAPERS Digitalization and Tax Compliance Spillovers INTERNATIONAL MONETARY FUND 2 Contents I.Introduction .................................................................................................................................................. 3 II.The e-Invoicing Reform in Peru ........................................................................................................... 6 III.Empirical Specification ......................................................................................................................... 9 IV.Data and Preliminary Verifications .................................................................................................... 11 V.Results .................................................................................................................................................. 14 A.Spillovers in Technology Adoption ..................................................................................................... 14 B.Market Segmentation: Transactions Between Firms .......................................................................... 15 C.Spillovers in Tax Compliance ............................................................................................................. 17 VI.Robustness Checks ............................................................................................................................ 20 VII.Conclusion ........................................................................................................................................... 22 References ......................................................................................................................................................... 23 Appendix ............................................................................................................................................................ 24 FIGURE