Tax withholding on business sales can increase tax compliance. A study in Costa Rica found that when payers collect tax from payees, it can lead to higher reported income and tax payments. By analyzing income and sales tax records from 400,000 firms, researchers discovered that a doubling of the withholding rate resulted in a 33% increase in sales tax payment and an 8% increase in total sales tax revenue. This increase was due to reduced misreporting and incomplete reclaim of the tax withheld. The findings suggest that withholding can be an effective tool in improving tax compliance in low compliance environments.