Abstract

Technology and digitalisation have great potential to boost taxpayer compliance and revenue collection in Africa. Despite an increasing reliance on IT solutions for taxpayers, evidence of their effectiveness is still limited. In Rwanda, the revenue authority has introduced a more advanced version of an electronic billing machine, EBM version 2 (EBMv2), both to strengthen the tracking of transactions for enforcement purposes and to improve the experience of taxpayers.

Based on a wealth of administrative data, this paper evaluates the impact of the adoption of EBMv2 on the filing behaviour of firms. Importantly, we can compare first-time adopters of EBMv2, mostly new taxpayers, with those moving from the old EBM version 1 to EBMv2. Findings reveal a significant increase in turnover, VAT inputs and VAT due, driven by new users. The probability of zero filing is reduced.

Furthermore, discrepancies between VAT and income tax returns are greater, due to a much larger increase in turnover from VAT returns, mostly attributable to first-time users. We recommend that policymakers closely examine shifters who do not change their behaviour after adoption. Furthermore, we suggest that tax authorities adopt a more holistic approach to monitoring compliance across different tax categories since the positive impact on VAT does not necessarily translate into income tax.

Authors

Naphtal Hakizimana

Naphtal Hakizimana is a Research and Policy Analyst at the Rwanda Revenue Authority.

Fabrizio Santoro

Fabrizio is a Research Fellow at the Institute of Development Studies, and the Research Lead for the second component of the ICTD's DIGITAX Research Programme. His main research interests relate to governance, public finance, and taxation, with a strong focus on impact evaluation methodologies and statistical analysis. He holds a PhD in Economics from the University of Sussex.
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