Nudging tax filing through text message combinations: evidence from Pakistan

Abstract Developing countries, with limited monitoring and auditing capabilities, face significant tax evasion issues. This study examines the impact of various text message combinations on promoting tax compliance, particularly in encouraging service providers to submit monthly sales tax returns in Khyber Pakhtunkhwa, Pakistan. A randomised controlled trial involved 18,087 service providers and tested three types of SMS reminders. These included a basic reminder for the due date, a reciprocity message emphasising social responsibility, and a loss aversion (LA) message highlighting financial penalties and deactivation. Subsequently, service providers who didn’t file on time received one of three warning messages. These warnings included a basic alert about potential legal action, financial penalties, and deactivation, as well as a message framing continued non-compliance as an active choice (AC). Overall, the interventions did not significantly influence tax filing behaviour beyond basic reminders and warnings. However, compliance improved for early registrants with the LA reminder and AC warning, and these results were robust to multiple hypothesis testing corrections. Compliance worsened for recent registrants in all combinations except the LA reminder and AC warning. These findings suggest that targeted low-cost messages that convey vague threats can improve tax compliance among certain taxpayer groups.