We study tax compliance under decentralized versus centralized tax enforcement. Using a tax administration reform in Canada, we examine which organizational level of tax enforcement leads to higher compliance. Our results show that there is more tax avoidance under centralized tax enforcement. We also provide a rationale for centralized tax administration. We find that firms become more competitive after moving from decentralized to centralized tax enforcement. We attribute the increased competitiveness under centralized tax enforcement to compliance cost savings and reduced tax burdens. Our analysis suggests that governments face a trade-off between securing tax revenue and increasing firm competitiveness.