Tax Compliance: Enforcing the Use of Electronic Fiscal Devices

Governments across East Africa mandate that businesses use electronic fiscal devices (EFDs) to increase compliance with VAT taxes, an important source of funding for public services. These devices directly transmit transaction information to the state’s revenue offices, decreasing the risk of falsification or non-compliance with tax laws. But even when EFDs are installed, they may not be used, or sellers may evade taxes by not issuing receipts or reporting their transactions.

This project explored whether unannounced EFD inspections and information campaigns can increase EFD use and ultimately improve government revenue collection. Researchers find that random inspections coupled with the information campaign have a marginal effect on the use of EFDs, mainly for larger businesses (those with average daily sales of at least 100,000 Tshs, or $45 USD a day). The daily reported sales increased by about two percent after treatment, and the number of receipts issued increased by about four percent. The information campaign alone did not have any significant effect on EFD compliance. While researchers find that there is some potential for the randomized inspections paired with information campaigns to marginally improve EFD compliance, results should be interpreted carefully given this was a small-scale pilot experiment.