Strengthening consumers’ participation in VAT compliance strategies in Rwanda

Policy brief State

  • The Value Added Tax (VAT) is one of the main tax instruments in Rwanda and, in the last few years, the Rwandan government and the Rwanda Revenue Authority (RRA) have developed a series of tax enforcement initiatives intended 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. However, VAT compliance remains low.
  • The 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 request official invoices. The RRA has implemented some consumer incentive strategies to encourage consumers to ask for receipts, including an EBM receipt lottery in 2015, but are seeking new solutions to incentivise consumers.
  • To understand the constraints on receipt requesting and to the potential usefulness of alternative consumer incentive approaches in raising compliance, we conducted a survey of more than 500 consumers in Rwanda.
  • The findings suggest that a lack of information among consumers regarding the availability of EBM receipts and about the EBM lottery system constrains their potential to enforce compliance.
  • Knowledge is not the only barrier: when consumers do ask for a receipt, at least 30 percent encounter a “price penalty”, where they are asked to pay a higher price to obtain a receipt.
  • The potential for implementation of alternative consumer incentive programmes is high: consumers express higher willingness to participate in smaller, more frequent lotteries or a VAT rebate system and they possess the technologies required to do so.