Odd-Helge Fjeldstad on Incentivizing customers to increase VAT compliance: Evidence from Tanzania

Odd-Helge Fjeldstad presents at the WIDER Seminar Series on 24 May 2023.

Incentivizing customers to increase VAT compliance: Evidence from Tanzania

Abstract

Like many other governments in African countries, the Government of Tanzania has implemented various compliance enhancement strategies to improve the effectiveness of the VAT system in order to reduce tax evasion. A key administrative initiative introduced in 2010 was the use of Electronic Fiscal Devices (EFDs) - tills that record and transmit data on sales transactions in real-time, to the tax administration and issue VAT-receipts. Despite the EFDs, VAT collection did not improve. A possible explanation for the limited success is that businesses are reluctant to print receipts (in which case the transaction is recorded and the VAT can be collected), and enforcement is costly and inefficient.

In this project, we test whether incentivizing customers to ask for receipts will push businesses to print more receipts, recording their transactions, and eventually increase VAT revenues. To incentivize customers to ask for a receipt, we collaborated with the tax authority in Tanzania and implemented a VAT lottery in Tegeta Tax Region in Dar es Salaam, in July-October 2022. During this period, receipts from a purchase made in Tegeta automatically became a ticket in a lottery when customers provided the seller with their phone number. Lottery draws were made every week, and there was one larger prize every month. The lottery was advertised through public announcements, posters and flyers, as well as social media.

At this seminar, Odd-Helge Fjeldstad will present an analysis of the impact of the lottery on the overall VAT compliance with specific attention on total volumes of sales, printing and issuance of receipts and VAT payable during the period of lottery. The presentation will also provide findings from three waves of customer surveys that were conducted in parallel with the lottery in Tegeta to document how customers perceived and responded to the lottery.

About the presenter

Odd-Helge Fjeldstad holds a PhD in economics from the Norwegian School of Economics. He has more than 30 years of experience from research and policy analysis in East and Southern Africa with a focus on the political-economy of taxation and reform. Odd-Helge has published widely, both scholarly and policy-oriented. His research has appeared in academic journals such as The Economic Journal, Journal of Economic Behavior and Organization, World Development, Journal of Development Studies, and Journal of Modern African Studies, and in books by Cambridge University Press, ZED/University of Chicago Press, Edward Elgar and Routledge. His experience also covers teaching, supervision and training in economic policy analysis, fiscal reforms, governance and the economics of corruption. His work has involved long-term collaboration with research institutions in Africa. He has been advisor for African governments on taxation and public financial management and has worked as consultant for bilateral and multilateral development organizations. Odd-Helge is Extraordinary Professor at the African Tax Institute, University of Pretoria; and Research Professor at Chr. Michelsen Institute, Norway, where he coordinates the research group on tax and public finance management.

WIDER Seminar Series

The WIDER Seminar Series showcases the latest research on key topics in development economics. It provides a forum for senior and early-career researchers, both in-house and external, to present recent and ongoing work related to UNU-WIDER’s current work programme.

In addition to providing a forum for both academic debate and training, the series presents an opportunity for policy makers and others interested in development to learn about the latest research methods and findings.

The WIDER Seminar Series events take place on Wednesdays. All those interested are invited to register and attend via Zoom or in person.