The two districts use several types of POS machines, Regular POS (RPOS), Transaction Monitoring Device (TMD), and Web Service (WS). Gorontalo, however, also employs an additional POS type for hotel taxpayers called PAC Hotel and a modification of RPOS with connection to third-party data, namely RPOS-Grab. RPOS refers to a complete set of sales recording systems from the cash register machine and interface which helps users record transactions and print receipts. TMD, on the other hand, refers to a tapping device which is planted to an existing sales recording system and steals the transaction data. While WS is an API based software that reads users’ online sales system and sends the transaction records to the local governments. The POSs were distributed based on preexisting condition of the receivers, which we describe in detail in the next section of the paper.

Our research demonstrates that the influence of various POS device types on tax compliance varies. In West Manggarai, both TMD and WS have successfully improved restaurant tax compliance. We estimate that TMD and WS led to 180 percent and 55 percent increases of restaurant tax payments compared to the control group, respectively. WS, however, proved to have no significant effect on improving hotel tax compliance in the district.

In Gorontalo, restaurants that obtained RPOS-Grab on average paid 68 percent higher restaurant tax compared to those in the control group. On the other hand, restaurants that received RPOS units without Grab connection and TMD have indifferent tax payments on average compared to their control.

TMD and WS significantly increased tax payments among observed hotels and restaurants in both districts. Our findings shed light on the influence of business size and existing technological mastery on the efficacy of POS adoption in boosting tax payments. Larger businesses with better proficiency in using electronic transaction technology tend to pay higher taxes on POS assignment. That leaves regular POS (RPOS) as the only POS type with consistent statistically insignificant impact on tax receipt in both districts.

Our study contributes to the literature on tax compliance by providing unique insights into how various transaction-monitoring technologies could affect tax compliance in developing economies’ subnational settings. In doing so, we connected several sets of studies. The first comprises a set of studies discussing tax enforcement (Andreoni et al., 1998; Slemrod and Yitzhaki, 2002; and Slemrod, 2019). Second are those evaluating policyinduced third-party reports on value-added tax (VAT) liabilities (Bellon et al., 2019; Lovics et al., 2019; Fan et al., 2018). The third is a group of studies on consumers’ use of electronic payment technologies (Brockmeyer and Somarriba, 2022; Agarwal et al., 2007; Bolt et al., 2010). Unlike existing literature, which mostly focuses on the acceptance aspect of POS devices, this study is the first to connect the POS distribution program and local tax payment data to examine the program’s overall efficacy.

The remainder of this paper is organized as follows. Sections 2 and 3 present the background and data used in our study together with some conceptual foundations. Sections 4 and 5 explain the empirical strategy employed and results, respectively. Section 6 extends the interpretation of the results, and Section 7 concludes.

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