An Analysis of Discrepancies in Tax Declarations Submitted Under Value-Added Tax in Uganda
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Date
2017-04-04
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London, London School of Economic and Political Science, International Growth Centre
Abstract
Many low-income countries (LICs) have implemented Value-added tax (VAT) systems during the last decades on the recommendation of economists, who predict that VATs should (i) not distort production, (ii) help create paper trails, and (iii) generate offsetting misreporting incentives for transacting pairs of firms. Paper trails and offsetting misreporting incentives are argued to especially benefit tax enforcement in LICs. But this only holds if the revenue authority has sufficient resources (manpower, training programs, etc) to “act on” these enforcement-friendly properties, and firms believe the revenue authority to have such resources. We evaluate the actual performance of Uganda’s VAT, using three years of tax-declaration level data from the Uganda Revenue Authority (URA). We show that the distribution of reported value added amounts is suspiciously low, with substantial consequences for tax revenue. This is despite the fact that firms are required to submit monthly reports on the amount bought from/sold to any transaction partner declared under the VAT – paper trails – to the URA. We use these to compare the amount reported by sellers and buyers and find widespread discrepancies. We investigate the potential drivers of these discrepancies, and what types of firms are more likely to report mismatching amounts. Finally, we discuss a pilot program to attempt to tackle the uncovered discrepancies currently being designed in collaboration with URA.
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Citation
Almunia, M., Gerard, F., Hjort, J., Knebelmann, J., Nakyambadde, D., Raisaro, C., & Tian, L. (2017). An analysis of discrepancies in tax declarations submitted under value-added tax in Uganda.