VAT collection only at the retail stage: Evidence on tax compliance

Annalisa Tassi and Adrien Bussy

No 2025-05, FBK-IRVAPP Working Papers from Research Institute for the Evaluation of Public Policies (IRVAPP), Bruno Kessler Foundation

Abstract: We investigate whether firms engage in VAT evasion at the retail stage—typically a point of weakness in VAT systems—in a high-enforcement, low-informality setting. To measure evasion, we exploit a reform of VAT rules (the reverse charge, RC) whereby retailers do not only remit taxes on their own value-added, but on that created along the entire supply chain, increasing their incentive to evade. Using German administrative firm-level VAT return data and an instrumental variable approach based on RC’s staggered introduction, we find no evidence of greater evasion under RC. Our results suggest that evasion at the retail stage might not be quantitatively important in high-enforcement and low-informality settings, implying little need to enlist consumers in tax enforcement to boost tax compliance.

Keywords: Value Added Tax; VAT; Reverse Charge Mechanism; Tax Evasion; Withholding; Last- Mile Problem (search for similar items in EconPapers)
JEL-codes: D22 H21 H26 (search for similar items in EconPapers)
Date: 2025-12
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