Randomized Inspections and Information Campaigns

Project summary

Randomized Inspections and Information Campaigns: Impact on Compliance to the use of Electronic Fiscal Devices (EFDs) in Tanzania

Issue:

Governments across East Africa mandate that businesses use electronic fiscal devices (EFDs) to increase VAT tax compliance. These devices directly transmit transaction information to state revenue offices, decreasing the risk of falsification or non-compliance with tax laws. But, even when EFDs are installed, they may not be used, or sellers may evade taxes by not issuing receipts or reporting their transactions.

Questions:

• Can top-down, audit-based approaches be coupled with EFD use to improve compliance and revenue collection?
• Can public information campaigns, emphasizing the civic duty to claim receipts and pay taxes, increase revenue collection?

Abstract:

In response to low tax revenue collection, several developing countries have introduced electronic cash registers (or Electronic Fiscal Devices – EFDs) to improve tax compliance. Effectiveness of the new system however hinges on compliance to usage of the devices during transactions. This pilot study in the Arusha region of Tanzania is an attempt to test the impacts of randomized inspections of shops and information campaign to the public, as interventions to improve compliance on the use of the devices. The inspections seek to intervene on the “supply” side of the EFD receipts, while the campaign seeks to promote the “demand” side of the receipts.