Excise taxes and Digital Tax Stamps: Do Digital Tax Stamps work?
In the financial year 2019/20, the Ugandan government introduced Digital Tax Stamps (DTS) on some goods to minimise revenue leakage and under-reporting of excisable goods. This project assesses the impact of DTS on government tax revenues, firm profit, and output.
Excise taxes can help raise government revenue. However, in order to ensure that firms correctly report their sales revenues, a track-and-trace mechanism is needed. In the financial year 2019/20, the Ugandan government introduced Digital Tax Stamps (DTS), requiring all manufacturers of gazetted products to affix digitally traceable tax stamps on their products at their own expense. It was assumed that excisable goods are inelastic in demand and, as such, have the potential to raise more tax revenues. However, when businesses have the flexibility to trade informally, the demand for their products becomes relatively elastic. To that effect, introducing tax stamps at the expense of the taxpayer may have unintended consequences.
This study aims to estimate the impact of introducing digital tax stamps on government tax revenues, firm profit, and output. It also aims to better understand the implications of contracting a private party to issue tax stamps with the taxpayer directly meeting the cost. Findings can inform the government of Uganda’s decisions on the management of digital tracking solutions and contribute to the limited literature on empirical taxation from low- and middle-income countries, especially in sub-Saharan Africa.
