What You Do (and What You Don’t) Get When Expanding the Net - Evidence from Forced Taxpayer Registrations in South Africa

71 Pages Posted: 12 Jun 2020 Last revised: 20 Jun 2022

See all articles by Collen Lediga

Collen Lediga

Ruhr University of Bochum

Nadine Riedel

University of Münster

Kristina Strohmaier

University of Tuebingen

Date Written: June 2, 2020

Abstract

A significant share of firms in developing countries is not registered for income taxation. Expanding the tax net is a priority for many governments, but most formalization policies proved relatively ineffective in bringing firms into the tax net. Drawing on rich tax administrative data, we document that snapshot-synchronizations of the business tax and the commercial registry in South Africa led to a large-scale expansion of the South African business taxpayer net. While the targeted firms are a valuable segment within the non-formal sector, we show that their post-registration tax compliance is weak and few of them pay taxes. Owing to the large scope of the tax net expansion, the aggregate revenue gains are, nevertheless, non-negligible and the interventions are fiscally cost-effective. In additional analyses, we provide evidence for enforcement spillovers: In areas, where many firms were drawn into the tax net, tax registration compliance significantly improved after the snapshot synchronizations, while registration numbers at the commercial registry moderately declined.

Keywords: tax compliance, less developed countries

JEL Classification: H2

Suggested Citation

Lediga, Collen and Riedel, Nadine and Strohmaier, Kristina, What You Do (and What You Don’t) Get When Expanding the Net - Evidence from Forced Taxpayer Registrations in South Africa (June 2, 2020). Available at SSRN: https://ssrn.com/abstract=3616808 or http://dx.doi.org/10.2139/ssrn.3616808

Collen Lediga

Ruhr University of Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Nadine Riedel (Contact Author)

University of Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Kristina Strohmaier

University of Tuebingen

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

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