What you do (not) get when expanding the net - Evidence from forced taxpayer registrations in South Africa

Collen Lediga, Nadine Riedel and Kristina Strohmaier

Journal of Development Economics, 2025, vol. 172, issue C

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 timing compliance significantly improved after the snapshot synchronizations. We find no indication of a drop in registration numbers at the commercial registry.

Keywords: Formalization policy; Tax authority digitization; Developing countries (search for similar items in EconPapers)
JEL-codes: H2 H7 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:172:y:2025:i:c:s0304387824001378

DOI: 10.1016/j.jdeveco.2024.103388

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