EXECUTIVE SUMMARY

• Tax compliance in Punjab is a key policy issue in the context of a large informal sector and the limited enforcement capacity of the tax authorities. 
• As a policy reform geared towards improving government access to information trails via technological integration, the Punjab Revenue Authority PRA) introduced the Electronic Invoice Monitoring Software (EIMS) in designated services and firms.
• In this brief, we analyze the impact of this intervention by examining the difference in three tax-related outcomes for firms in the months after the adoption of EIMS. Our findings suggest a positive impact of the reform within three months post-adoption as:
  • Reported Sales Value increases by ~43%
  • Tax liability goes up by ~27%
  • Value added per unit of output goes up ~0.4
• Despite the large positive effects of EIMS on revenue, adoption remains on the lower end. To understand the constraints in the adoption of EIMS, further research was conducted through focus groups with compliant and non-compliant taxpayers. We outline the key considerations in the taxpayer’s decision to adopt EIMS, which include:
  • Presence of financial incentives or tax breaks for taxpayers adopting EIMS,
  • Compatibility and ease of integration of EIMS with sales software used by taxpayers.,
  • Adoption behavior of competing firms,
  • Existence of consumer incentive programs, 
  • Impact on the tax compliance costs of the firm
• Considering our findings, the widespread application of EIMS will prove to be a useful tool for PRA in increasing revenue and tax compliance. However, the maximum revenue impact can only be achieved once barriers to adoption are removed, and taxpayers are motivated to integrate with EIMS rules.

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