Tax compliance and firm response to electronic sales monitoring

This paper analyzes how firms respond to an Internet of Things technology that reduces significantly the tax authorities' marginal cost of monitoring firm activity. More precisely, we analyze how mandating every restaurant of a single Canadian province to have sales recording modules (SRMs) affects restaurant sales, expenses and profits. We estimate that SRMs increase reported sales by 5.8% to 9.8% on average and that this increase is almost completely offset by an equal increase in expenses, including wages. As a result, the firms' taxable income remains mostly unchanged. Our results suggest that sales tax remittance enforcement at the firm level spills over to other firm stakeholders, such as employees and suppliers. Overall, the one-time cost of the device needed to monitor sales more efficiently is small compared with the recurring benefits for tax authorities. Respect des obligations fiscales et reaction des entreprises a la surveillance electronique des ventes. Cet article analyse comment les entreprises reagissent a une technologie de l'Internet des objets qui reduit considerablement le cout marginal de la surveillance des activites des entreprises par l'administration fiscale. Plus precisement, nous etudions comment l'obligation que tous les restaurants d'une seule province canadienne possedent un module d'enregistrement des ventes (MEV) touche leurs ventes, leurs depenses et leurs profits. Nous estimons que les MEV augmentent les ventes declarees de 5,8% a 9,8% en moyenne et que cette augmentation est presque compensee par une hausse egale des depenses, y compris des salaires. Par consequent, le revenu imposable des entreprises demeure pratiquement le meme. Nos resultats suggerent que l'application de la perception de la taxe de vente a l'echelon de l'entreprise se repercute a d'autres parties interessees de cette derniere, comme les employes et les fournisseurs. De facon generale, le cout ponctuel de l'appareil requis pour surveiller les ventes plus efficacement est petit comparativement aux avantages recurrents pour l'administration fiscale.