VAT lottery incentives: An opportunity for South Africa?

Abstract

Some countries have introduced receipt-based tax lotteries (value-added tax (VAT) lotteries) in recent years in an effort to improve tax compliance. This acknowledges that the traditional method of tax compliance enforcement through audits, fines and penalties alone may no longer be optimal. The idea of a VAT lottery is to incentivise consumers to ask for a receipt when paying for goods or services, which serves as a lottery ticket that gives the consumer an opportunity to win a prize.

The decline in tax compliance globally poses a threat to revenue collection and, ultimately, to governments’ ability to meet their spending commitments. Other countries, but particularly South Africa, may benefit from implementing a VAT lottery to assist in improved VAT collection. This study aims to analyse VAT lotteries that have been implemented across the world – particularly in the European Union (EU) member countries – through a systematised review in order to determine whether such a lottery could improve taxpayer compliance in South Africa.

Of the six EU member countries analysed in detail, four showed a decrease in the VAT gap in the years following the VAT lottery implementation. VAT gap data post-implementation was not available for two of the countries. Positive results include an increase in the number of vendors reported for refusing to issue invoices, a reduction in the number of non-validated receipts, and increased VAT collection. The finance ministers of two countries, and the Ministry of Finance of another, publicly declared the VAT lotteries successful.

Keywords:

• award
• behaviour
• incentive
• reward
• tax compliance
• VAT lottery

Notes

1 The difference between the estimated potential net VAT collections for a specific period and the accrued net VAT collections for that same period (Fiscal Affairs Department, 2015, p.5).

2 Other major tax contributors are personal income tax (38%) and company income tax (18%) (Ministry of Finance [South Africa], 2018, p. 3)

3 All currencies were converted using the exchange rate on 8 January 2020 (Oanda, 2020).

4 EU member country contribution data reflects information for 2015, except for Malta and Romania. Malta and Romania reflect 2016 data. South African data reflects 2017 estimated data.

5 Based on 2018 information.