The Impacts of An Innovative Audit Strategy on the Amount and Incidence of Retail Tax Evasion: Mystery Shoppers and Electronic Billing Machines

Investigators: CDEP Affiliate Francois Gerard with Nada Eissa and Andrew Zeitlin

A central question for a country's economic development is how to improve the state's ability to raise revenues domestically in the presence of widespread tax evasion. Like other developing countries, Rwanda has recently mandated VAT-registered businesses to use certified electronic billing machines (EBMs). These machines specify the correct tax level and send data for each transaction in real-time to the Rwandan Revenue Authority (RRA), thus limiting the room for VAT evasion. However, by sending "mystery” shoppers to small and medium-sized retailers, the research team found that many retailers do not use the EBM for every transaction. In this project, the investigators study the impacts of scaling up such "mystery"-shopper audits on tax evasion. The research design also allows the investigators to study how the benefits of tax evasion are split between customers and retailers, providing key insights for the political economy of persistent tax evasion in developing countries.

Results available in International Growth Centre, Growth Brief, May 2018: "Value Added Tax in Developing Countries: Lessons from Recent Research."