Publication - Working Paper
Electronic Billing Machines (EBMs) enable revenue authorities to monitor formal business transactions and thus offer the potential to improve VAT compliance. However, because firms can choose not to issue receipts or issue false receipts, EBMs do not offer truly objective tax reporting and have thus offered limited benefits to tax collection. Using examples from Rwanda, this paper argues EBMs can have transformative impacts for VAT compliance, but only when combined with data analytics and receipt audits to enforce EBM receipt issuance. This can be done using a three-step approach: initial ‘benchmark audits’ can establish firms’ true sales patterns; data analytics then flag firms deviating from this pattern, which trigger automatic ‘mystery shopper’ audits to verify non-compliance and sanction the firm.
EBMs combined with these measures offer a powerful way to ensure firms accurately report on VAT liabilities, which may significantly improve domestic revenue mobilisation in countries with high VAT non-compliance.