The centre for tax analysis in developing countries

Overseas Development Institue Institue for Fiscal Studies

This paper investigates the effect of electronic payments technology on firms’ tax compliance in a large developing economy. The paper considers India’s demonetization policy which, by limiting the availability of cash, led to a large increase in the use of electronic forms of payments. Using administrative data on firms’ tax returns and variation in the strength of the demonetization shock across local areas, the paper finds that greater use of electronic payments leads to firms reporting more sales to the tax authorities. This effect is strong enough to explain roughly half of the large (11%) increase in reported sales observed during demonetization.

Published on: 11th January 2022

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