- that bunching at the rst bracket threshold in the income tax schedule - a proxy for misreporting<sup>6</sup> is large and sharp in the full sample, but signicantly smaller among rms covered by informationreporting from other rms. Bunching is even smaller among rms covered by reporting by state institutions or credit/debit card companies, the two reporting mechanisms which are also associated with withholding. We then exploit within-rm changes over time in the coverage by information reporting in an event study. We nd that reported tax liability increases by up to 50% after rms are reported for the rst time by another rm, by 22% after the rst report from a state institution and by 25% after the rst report from a credit/debit card company. These eects emerge suddenly at event time and can thus not be reconciled with a pure growth eect.

Finally, we isolate the impact of withholding by exploiting a quasi-experimental increase in the withholding rate applied by credit/debit card companies to rms' card sales. As all card sales were already reported to the tax authorities and credit card usage hardly responds to the reform, this rate change did not aect the information environment. Applying a dierence-in-dierence estimation, we nd that a doubling of the withholding rate leads to a 33% increase in sales tax payment among taxpayers subject to withholding. In aggregate, the withholding rate reform increased sales tax payments by about 8%.<sup>7</sup> This eect is driven by incomplete reclaim of the tax withheld, and an increase in reported taxable income among rms subject to withholding. We argue that this reporting response is due to a salience of enforcement eect. Indeed, the response is driven by rms for whom the withholding rate changes from zero to a positive rate (as opposed to rms experiencing a similarly-sized change from a positive to a larger rate), and which are thus informed of the amount of tax withheld for the rst time on their credit/debit card machine statement. We also conrm that only a tiny fraction of taxpayers reclaim the tax withheld through other channels, for instance by requesting a cash refund.

Our paper contributes to several strands of literature. First, our work contributes to the literature on taxation and development, as reviewed in Besley & Persson 2013. Theoretical contributions in this literature have discussed why tax systems in developing countries dier from those in high income countries (Keen 2008, Gordon & Li 2009, Best et al. 2015). Our results rationalize the prevalence of withholding schemes for rms as an enforcement tool in low compliance environments. Our results are also consistent with Kopczuk et al. (2016) and Slemrod (2008) who argue that the tax remittance arrangement aects compliance, an argument for which we propose a new mechanism. More generally, our evidence highlights the important role of rms in enforcing taxes (here as infor-

> 6Previous studies have shown that bunching is largely driven by misreporting rather than real responses (e.g. Best et al. 2015 for the mininum tax kink in Pakistan, Almunia & Rodriguez 2015 for an enforcement notch in the Spanish corporation tax).

> 7Overall, withholding agents collected 10% of corporate income tax revenue and 20% of sales tax revenue in 2014.

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