Using computerized information to enforce VAT: Evidence from Pakistan

Jawad Shah

Journal of Development Economics, 2026, vol. 178, issue C

Abstract: I test the efficacy of VAT’s in-built third-party information trail, together with electronic filing, to deter tax evasion in a low state capacity environment. Using a reform which utilizes information beyond the VAT trail and authorizes a computerized risk analysis system to accept or reject tax credits in real time, my difference-in-differences estimates show that claims declined by 50%. Based on firm heterogeneity, the response ranges from 30%–90%. Approximately 10% of treated firms were fake, created for missing trader fraud. The lower bound estimate of increase in net VAT collection at the country level is 10%. I find that traditional VAT enforcement mechanisms of cross-matching, audit and recovery fail to deter evasion in developing countries but a risk-based real-time enforcement system is effective.

Keywords: Value added tax; Tax evasion; Missing trader fraud; Enforcement; Information reporting; Firm behavior (search for similar items in EconPapers)
JEL-codes: H25 H26 H32 O17 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:178:y:2026:i:c:s0304387825001464

DOI: 10.1016/j.jdeveco.2025.103595

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