Incentivizing Customers to Increase VAT Compliance: Evidence from Tanzania

Like many other governments in African countries, the Government of Tanzania has implemented various compliance enhancement strategies to improve the effectiveness of the VAT system in order to reduce tax evasion. A key administrative initiative introduced in 2010 was the use of Electronic Fiscal Devices (EFDs) - tills that record and transmit data on sales transactions in real-time, to the tax administration and issue VAT-receipts. Despite the EFDs, VAT collection did not improve. A possible explanation for the limited success is the improper use of EFDs by the businesses and customers not requesting receipts on their daily transactions. Recognizing the inefficiencies in VAT administration, the Tanzania Revenue Authority (TRA) in collaboration with Chr. Michelsen Institute (CMI) of Norway initiated an EFD Lottery. A pilot project was implemented in Tegeta Tax Region in Dar es Salaam. The lottery’s overall objective was to improving VAT compliance by encouraging customers to request EFD receipts by rewarding them with a ticket in the lottery with weekly and monthly prizes. The pilot lottery was conducted over three months in 2022. All businesses in Tegeta Tax Region with an EFD machine were included and all customers who made purchases in Tegeta qualified for free participation with their EFD receipts used as tickets in the lottery. The pilot lottery aimed to test the EFD lottery before it is rolled out on a larger scale in the country. At this seminar, we will present an analysis of the preliminary impact of the pilot-lottery on the overall VAT compliance with specific attention on total volumes of sales, printing and issuance of receipts and VAT payable during the period of lottery. The presentation will also provide findings from three waves of customer surveys that were conducted in parallel with the lottery in Tegeta.