The tax and labour implications of the EBM for All policy

Electronic invoicing systems have been widely implemented as a strategy for increasing tax compliance. However, the economic impact of these policies is ambiguous. On the one hand, they can increase tax revenue and strengthen connections between productive buyers and suppliers. On the other hand, they can impose costs of compliance and lead to more concentrated, less resilient supply chains. 

In this project, we explore the economic impact of mandating the use of electronic invoices for itemised costs in corporate income tax filings in Rwanda. In December 2020, Rwanda Revenue Authority (RRA) announced EBM for All, a new policy that introduced income tax validation requirements using Electronic Billing Machine receipts (EBM). This policy has wide-ranging implications. Large firms now seek electronic invoices for their purchases to declare expenses, limiting the scope for profit-tax manipulation and reducing demand for legitimate suppliers who cannot provide invoices. In procuring electronic invoices, large firms change formalisation incentives for small firms, as small firms that do not issue electronic invoices will face a market disadvantage.

Our research contributes to three strands of literature on tax compliance, formalisation, and firm trade.