Improving SME tax compliance without increasing revenue? Evidence from a population-wide randomized controlled trial in Papua New Guinea

“Nudges” have increased tax revenue in settings with high rates of compliance and effective enforcement, however can they work in countries that lack these conditions? We test this through a population-wide randomized control trial of Small and Medium Sized Enterprises (SMEs) in Papua New Guinea (PNG). This is a setting where no one has faced severe criminal charges for non-compliance and 95 per cent of registered SMEs do not make the required monthly Salaries and Wages Tax (SWT) lodgements. We test the effectiveness of SMS messages that either remind SMEs of lodgement due dates or inform them about the public benefits from paying tax. Both treatments doubled on-time SWT lodgements by SMEs with no employees. However, this did not increase revenue as sole traders are exempt from paying SWT. These findings support seminal theories proposing that taxpayers who face the lowest cost from complying are the most likely to respond to a nudge. JEL-Classification: C93, D91, H2, H20, O1, O170