The VAT in practice: equity, enforcement, and complexity

Giulia Mascagni (), Roel Dom, Fabrizio Santoro () and Denis Mukama
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Giulia Mascagni: Institute of Development Studies and International Centre for Tax and Development
Roel Dom: Belgium. Previously at the Institute of Development Studies and International Centre for Tax and Development
Fabrizio Santoro: Institute of Development Studies and International Centre for Tax and Development
Denis Mukama: Rwanda Revenue Authority

International Tax and Public Finance, 2023, vol. 30, issue 2, No 9, 525-563

Abstract: Abstract The value-added tax (VAT) is meant to be an efficient and self-enforcing tax on consumption. Yet, being a rather sophisticated tax, the VAT can also be complex and costly to administer. By examining the case of Rwanda, this paper assesses the extent to which the VAT’s potential materialises in the context of a lower-income countries. Using a mixed-methods approach, which combines qualitative information from focus group discussions with the analysis of administrative and survey data, this paper makes two contributions. First, it documents reporting inconsistencies in VAT data, providing new evidence on how weak capacity prevents tax administrations in lower-income countries from reaping the full benefits of the VAT. Second, it shows that the VAT, as applied in practice, differs substantially from its theoretical functioning. This generates differences in tax burdens across firms, despite a proportional tax rate, with important distributional implications. We also document that the VAT chain often breaks down, with implications on the VAT’s efficiency.

Keywords: Value-added tax; Equity; Enforcement; Complexity; Tax administration (search for similar items in EconPapers)
JEL-codes: H22 H25 H26 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10797-022-09743-z

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