Tax Compliance and the Timing of Taxation: Experimental Evidence from Kenya
Tax compliance is a key priority for developing countries. The project investigates the role of timing of taxation. Can relaxing the timing of tax obligations increase compliance, by allowing firms to better align their tax payments with cash flow? Standard tax models often focus exclusively on how taxation affects firms’ profitability, rather than their cash flow. This assumes that firms can use credit to smooth cash flow over time. However, this is often not possible for smaller firms, particularly in developing countries. Working in partnership with the Kenya Revenue Authority, we plan to implement two easily scalable interventions focused on the timing of taxation: Randomized offers of tax debt payment plans (Subproject A) and of more flexible VAT payment options during times of COVID-19 (Subproject B). We will measure their impact on current and longer-term tax compliance, using administrative data on the full universe of formal firms in the country.