Focus Group Discussion on the VAT system in Rwanda

Project Researchers: Mads Knudsen, Yves Nsengiyumva & Fabrizio Santoro
Partners: Vanguard Economics
Past Project

The central question we try to answer is why would taxpayer report inconsistent information of their VAT transactions to the authority? The question is relevant since we documented in a forthcoming ICTD working paper that the extent of depth of VAT discrepancies in Rwanda is alarming and it is still not clear what is causing it. Very little is known about it. We formulated some hypothesis in terms of blatant evasion, poor record-keeping or lack of knowledge. Pomeranz (2015) in Chile showed that evasion is key explanation for VAT misreporting.

To explain internal discrepancy between VAT return and EBM data we propose different hypothesis such as lack of knowledge of the EBM, poor record-keeping, evasion due to low perception of enforcement with the EBM data. Behind the observed external discrepancies between sellers and buyers, we think that buyers’ under-claiming is mainly due to strategic gaming of buyers that postpone their claim, as well as lack of knowledge on how to process a claim or the intention of appearing small and go undetected by the authority