payments minus refunds as dependent variable (dividing annual income tax payments equally across months of the relevant scal year for estimation purposes), we estimate that the reform increased tax payment by 22.5% (column 5). Given that annual sales tax payments are on average almost twice as high as income tax payments, this is consistent with the demonstrated increase of sales tax payments by 33% and even a slight increase of income tax payments. Indeed, to the extent that taxpayers are internally consistent, i.e. report the same tax base on the income and sales tax declaration, an increase in sales tax compliance would spillover to the income tax.

# 6.3 Mechanisms of Withholding Impact

One potential mechanism is the default mechanism, by which incomplete reclaim of the tax withheld, ceteris paribus, leads to an increase in total tax payment. Panel A and B of Figure X show evidence for this. The share of withholdees making a reclaim on their sales tax declaration, conditional on having a non-zero gross tax liability, is only around 50% before the reform, and drops close to 40% at the time of the reform. This drop occurs because the reform increases the number of taxpayers subject to withholding, and many of the new withholdees might not be familiar with the reclaim procedure, or might not even realize that they are suject to withholding. As these new withholdees start to reclaim the tax gradually, the share of withholdees making a reclaim increases, and eventually surpases the pre-reform share of reclaimers by approximately 10 percentage points. The average share of withheld tax reclaimed, as displayed in the second panel, follows a similar pattern. The share uctuates between 80% and 95% before the reform, then drops sharply at the time of the reform, and recovers gradually. However, the share of withheld tax reclaimed is much higher than the share of reclaimers. This provides evidence that incomplete reclaim is indeed a mechanism through which withholding increases total tax payment, but mostly for small rms. Indeed, columns 1 and 2 in table VII show that the withholding rate increase generates a larger payment increase for the self-employed than for corporations.<sup>53</sup> This suggests that a second mechanism must be at play, which is analyzed in the bottom panels of Figure X. The gures display results from estimating Equation VIII, as in Figure VIII, with dierent outcome variables, as indicated in the panel titles. The gures conrm that the reform did not aect the amount of sales tax collected (nor the amount of total reported sales), suggesting that production has not decreased as a result of the reform. Yet the reform led to a 3% reduction in reported input tax credits in the treatment group. Combining these two results means that the reported gross tax liability in the treatment group increased by 17%. This is consistent with a world in which rms evaded sales tax by over-reporting input tax credits, but report more accurately after

> 53We chose the rm type division as it is based on a time-invariant characteristics that is unlikely to be misreported. Results are similar when splitting the sample by median pre-reform revenue.

29