Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax

Waseem, Mazhar

doi:10.2139/ssrn.3582327

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Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax

CESifo Working Paper No. 8231

63 Pages Posted: 22 Apr 2020

See all articles by Mazhar Waseem

Mazhar Waseem

University of Manchester

There are 3 versions of this paper

Date Written: 2020

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 Classification: H250, H260, H320

Suggested Citation: Suggested Citation

Waseem, Mazhar, Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax (2020). CESifo Working Paper No. 8231, Available at SSRN: https://ssrn.com/abstract=3582327 or http://dx.doi.org/10.2139/ssrn.3582327

Mazhar Waseem (Contact Author)

University of Manchester ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

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Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax

Mazhar Waseem