Strengthening consumers' participation in VAT compliance strategies in Rwanda

This project seeks to develop a better understanding of the potential for strengthening consumers’ participation in VAT compliance strategies in Rwanda. This research involves a collaboration with the Rwanda Revenue Authority to investigate how consumer-based enforcement approaches can boost the enforcement capacity of the government.  We will contextualise international experiences on policies using consumer incentives to tackle tax evasion and conduct an original survey of consumers to inform the design of new consumer-based enforcement policies in Rwanda.

The focus of this project is to explore strategies that may, in particular, be effective in addressing low levels of VAT compliance in Rwanda.  The VAT is one of the main tax instruments in Rwanda, and, in the last few years, the Rwandan government and the RRA have developed a series of tax enforcement initiatives to reduce VAT evasion. Most notably, Rwanda introduced Electronic Billing Machines (EBMs), which VAT-registered firms are legally required to use when invoicing both firms and final consumers. EBMs constitute powerful compliance tools, as they provide detailed information to the RRA about the recorded invoices. However, a concern remains that EBMs are not always used by VAT-registered firms. This issue is particularly severe at the last stage of the value chain, when firms sell to final consumers, because final consumers have limited incentives to ask for official invoices.  Consumer audit incentives exist to some extent in Rwanda, but are relatively ineffective: an EBM Lottery initiated in September 2015, offering prizes for EBM receipts submitted by consumers, has not produced substantial improvements in enforcement due to low take-up.

We will explore the potential for strengthening consumers’ participation in VAT compliance strategies in Rwanda in two ways. First, we will develop a policy report detailing international experiences with policies that incentivise consumers’ participation in VAT compliance strategies. Second, we will conduct a survey of Rwandan consumers in order to better understand consumers’ views and concerns in relations to both existing VAT compliance strategies and potential reforms to these strategies, including the strengthening of consumer incentives.  We hope that the results of this research will inform the development of innovative approaches to consumer-based enforcement in Rwanda.