The impacts of an innovative audit strategy on the amount and incidence of retail tax evasion: Mystery shoppers and electronic billing machines

Project Active from to State

Rwanda in 2013 mandated VAT-registered businesses to use certified electronic billing machines (EBMs) with a promise to improve business efficiency and tax compliance. These machines specify the correct tax amount and send data for each transaction in real-time to the Rwanda Revenue Authority (RRA). Although current data confirms the effectiveness of using EBMs as measured by increased VAT receipts, the government recognises that the effectiveness of this technology to support government revenue is limited by evasion: not all transactions are recorded by businesses, leading to lost VAT revenue. In fact, recent IGC research revealed that less than a quarter of small-scale transactions were recorded through EBMs under typical circumstances. Limited incentives on the part of consumers to ask for formal invoices exacerbate this problem, as the mandated EBMs go unused.

This randomised controlled trial examines the effects of a “mystery shopper” audit on Kigali-based firms’ compliance with VAT and EBM regulations. Conterminously, it will examine the effects of VAT (and EBM) compliance on prices: how far does tax compliance harm consumers, versus firms, and might this explain weak consumer policing?