What You Do (Not) Get When Expanding the Net

A significant share of firms in developing countries is not registered for income taxation. Expanding the tax net is a priority for many governments, but most formalization policies proved relatively ineffective in bringing firms into the tax net.  Drawing on rich tax administrative data, we document that snapshot-synchronizations of the business tax and the commercial registry in South Africa led to a large-scale expansion of the South African business taxpayer net. While the targeted firms are a valuable segment within the non-formal sector, we show that their post-registration tax compliance is weak and few of them pay taxes. Owing to the large scope of the tax net expansion, the aggregate revenue gains are, nevertheless, non-negligible and the interventions are fiscally cost-effective. In additional analyses, we provide evidence for enforcement spillovers: In areas, where many firms were drawn into the tax net, tax registration compliance significantly improved after the snapshot synchronizations, while registration numbers at the commercial registry moderately declined.