Improving VAT compliance – random awards for tax

The use of receipt-based tax lotteries to increase (VAT) tax compliance has been of growing interest amongst EU Member States. Some countries have introduced such lottery schemes, namely Malta in 1997, Slovakia in 2013 and Portugal in 2014. Others have been intrigued about the possibility of introducing a lottery.

The use of tax lotteries also has a history outside of Europe, notably in Taiwan since the 1950s. While there is growing interest in the use of tax lotteries throughout Europe, the understanding of best practises and success factors, is still limited. Therefore, this workshop brought together countries with experience and those interested in running tax lotteries.

TAXUD and the JRC in this context coordinated, establishing a platform for discussion amongst the Member States.

Tax receipts lotteries are designed to increase the issuance of receipts in business-to-consumer-transactions. This way, transactions are more likely to be part of the official (not the shadow) economy and VAT can be collected.

The idea of lottery schemes is to provide consumers with an incen-tive to ask for a receipt. The incentive is that the receipt is not just a piece of paper documenting the transaction made, but serves as a (potential) lottery ticket, giving consumers eligibility to participate in a tax lottery.

The lottery in turn gives the chance to win a prize if for a randomly drawn receipt. Hence, while obtaining the receipt is (for any legal transaction) of no extra cost to the consumer, it becomes valuable, as it serves as a lottery ticket.

For the tax authority the cost of paying prizes (and administering the lottery) is, in turn, outweighed by the extra revenue of an increased tax base, and by a citizen-policing effect of detecting VAT-dodging businesses.

While the general idea of a tax lottery is relatively straightforward, the specifics of how best to design and introduce the lottery are often less clear. Also the positive fiscal effect (the cost of the lottery being outweighed by the reduction of VAT evasion) is an empirical question.

Furthermore, the political economy (i.e., considerations of how to get such a scheme into the political process) of a tax lottery require consideration in advance. Additionally, the tax lottery can also serve other purposes, such as serving as a communication vehicle to the citizens to stress the importance of tax payments.

They may also trigger a public discussion about the two-way character of taxes (them being more than just a tribute, but something from which citizens expect something in return).

To discuss these points, European countries who had already a lottery scheme in place (Malta, Slovakia, Portugal) were invited to present their experiences, additional to presentations by a further invited specialist (Georgia), a researcher on this topic (with an implementation proposal for Greece) as well as the TAXUD and the JRC together with interested countries, to discuss the specificities.

Participants came together for a one-day workshop. Points of particular importance were to consider the moral issue of lotteries, to flank the lottery with an informational campaign, to use the lottery as a data collection tool, to keep transaction costs of participating in the lottery low, to consider all the actors involved, and to use the data generated in the process of the lottery.

It was also discussed that the fiscal success of the lottery can be significantly increased if focussing on particularly problem- atic sectors, where cash-in-hand practises are more prevalent, while putting less emphasis on large corporations and retail chains, for which the fiscal effect is minimal.

This report summarises the workshop, following a pyramidal approach. In the following section the motivation and elements of the workshop are summarised briefly.

More detail is included later, consisting of presentation protocols, the agenda, the participant list, an evaluation and reference to further information.

Access report: www.flipsnack.com/Phenix/improving-vat-c...-tax-compliance.html