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VAT ANTI-FRAUD POLICY IN AFRICAN COUNTRIES:
ADDRESSING FRAUD AND EVASION THROUGH LEGAL DESIGN
Rita de la Feria and Anculien Schoeman
VAT Symposium, October 2016 – South Africa
VAT fraud is common practice in many African countries. The effects of fraud go beyond the obvious loss of
tax revenues to those; it creates equity concerns and an uneven playing field for honest businesses, and it is
often associated with organised crime. Whilst fighting fraud requires a concerted policy, encompassing
various measures, legal design can significantly contribute to an increase in VAT compliance in developing
countries through the introduction of measures that reflect a mixture of positive and negative incentives. The
aim of the paper is to propose a legal framework for combating VAT fraud in developing countries, in
particular African countries, which takes into account the administrative constraints, as well as other social
factors often present in those countries.
I. General Considerations on VAT Fraud
Over 160 countries around the world apply a Value-Added Tax (VAT), of which 44 – out of 54 – are African
countries.1 Whilst there are many good policy reasons for introducing a VAT, one of the main reasons has been
its perceived imperviousness to fraud. Indeed, the inclusion of consumption taxes in the tax mix is traditionally
seen as spreading the risk of enforcement,2 and VAT perceived as less susceptible to fraud than its principal
alternative, namely Retail Sales Tax (RST). Yet, VAT, like any other type of tax, is vulnerable to fraud; whilst the
incentive for traders to ensure that suppliers provide invoices ensures that VAT is to some extent self-
enforceable, it is also true that this self-enforceability is somewhat illusory.3 This is primarily for two reasons: this
incentive is only present where the acquirer is a business registered for VAT purposes, but not where it is a final
consumer or a non-registered business; also, even for registered businesses, who have the incentive to request
the invoice, this incentive does not extend to ensuring that VAT has actually been paid. It is precisely through
these two gaps that fraud has spread.
The exact level of VAT fraud and the corresponding revenue loss is, by its own nature, difficult to estimate. Yet
revenue loss is only one of the problems associated with VAT fraud. The connection between organised crime
and certain types of fraud, namely missing trader fraud and bogus traders, as well as its use as a financing
method for illegal activities,4 has been established in criminological research since the late 1980s, early 1990s.5
Professor of Tax Law, University of Leeds, and Senior Lecturer, University of Pretoria, respectively. 1 Crowe Horwath, Africa VAT/GST Guide 2016, 2016. <www.crowehorwath.net/uploadedfiles/mu/additional-
content/home/africa%20vat%20guide%202016.pdf> accessed 26 August 2016; EY, 2016 Worldwide VAT, GST and Sales Tax Guide, 2016. <www.ey.com/GL/en/Services/Tax/Worldwide-VAT--GST-and-Sales-Tax-Guide---XMLQS?preview&XmlUrl=/ec1mages/taxguides/VAT-2016/VAT-BW.xml> accessed 26 August 2016. 2 R. Broadway et al, “Towards a Theory of the Direct–Indirect Tax Mix” (1994) Journal of Public Economics 55(1), 71-88. 3 M. Keen and S. Smith, “VAT Fraud and Evasion: What Do We Know and What Can Be Done?” (2006) National Tax Journal LIX(4), 861-887. 4 HM Government, Serious and Organised Crime Strategy, October 2013. 5 P. van Duyne, “VAT Fraud and the Policy of Global Ignorance” (1999) European Journal of Law Reform 1, 425-443. See also S White, “VAT revenue and organised crime: time for action?” (1999) European Law Review 24(4), 433-439.
VAT fraud may also have potential negative effects on legitimate traders by creating distortions to competition.
Although there are few studies showing concrete evidence of this impact, the few that do exist seem to confirm
intuition, namely that this impact may be significant in affected industries.6
Diagram 1: VAT Fraud Effects
Whilst VAT fraud and evasion can take various forms, and therefore any list will be far from exhaustive, it can be
broadly divided into six types, as set out in Table 1.7 The first two types can be broadly characterised as black
market fraud, or shadow economy fraud; the two final types require a level of sophistication and intension, and
can be broadly characterised as organised fraud.
Table 1: Typology of VAT Fraud and Evasion
Under-Reported Sales Trader may report only a proportion of sales, falsifying records and accounts
to match, or may make some sales “off the books”, by not issuing invoices.
Most common in firms selling to final consumers that do not need invoices.
Failure to Register Small businesses operating close to the level of turnover at which registration
becomes compulsory.
6 M. Frunza et al consider the impact of VAT fraud on the European carbon allowances markets between 2008 and 2009, and find it to have been extremely significant on the markets’ overall performance and its volatility, see “Statistical Evidence of Tax Fraud on the Carbon Allowances Market”, 11 March 2010, available at SSRN: http://ssrn.com/abstract=1664111. 7 This typology is based on that included in Keen and Smith, n. xx above.
Fraud
Revenue Loss
Distortions to
competition
Subsidy to Organised
Crime
Taxpayer Inequity
Firms selling to final customers predominate.
Misclassification of Commodities When different rates apply, traders may reduce their liability by exaggerating
the proportion of sales in the lower-taxes categories.
Claim for Non-Refundable Input VAT Type 1: When traders supply variety of outputs, some subject to VAT and
others exempt, there is incentive to allocate inputs to production of taxed
items.
Type 2: Items bought for private consumption may be misrepresented as
businesses inputs, allowing VAT input recovery.
Bogus Traders Companies may be set up solely to generate invoices that allow recovery of
VAT – “invoice mills” that exploit the practical impossibility of cross-checking
every invoice against evidence that earlier tax has been paid.
Tax Collected But Not Remitted Possible through false accounting, by engineering bankruptcy before tax is
paid, but crucially also, through missing trader fraud.
II. VAT Fraud and Evasion in African Countries
Of the 54 countries in Africa, 44 countries have a VAT. Although the other countries do not have a VAT as such,
most of them do either apply some form of consumption taxes, or a general sales tax. The earliest VAT system
implemented in Africa was by Ivory Coast in 1960, followed shortly thereafter in 1962 by Madagascar; four more
countries implemented VAT in the 1980’s; the 1990’s saw 21 countries adopting a VAT system, and then 17
more after 1999. 17 countries have increased their original VAT rate since implementation, whereas only 5
countries reduced their VAT rate. Table 2 below provides a summary of VAT systems in Africa, indicating the
date of introduction of the VAT system, the rate VAT was originally introduced at, the current standard VAT rate
and the reduced/increased VAT rates where applicable.
Table 2: History of VAT rates in African countries8
Country Date of
introduction
Rate at
Introduction
Standard Rate Increased/ Reduced
Rate (other than 0)
Algeria
1992 13 17 7
Angola
No VAT. Combination of a single-stage sales tax and excise duty is levied
Benin 1991 18 18
Botswana
2000 10 12
8 Crowe Horwath, 2016. n. xx above.; EY, 2016. n. xx above; RM. Bird, and P. Gendron, The VAT in Developing and
Transitional Countries (New York: Cambridge University Press 2007)
Burkina Faso
1992 15 18
Burundi
2009 18 10
Cameroon
1999 18.7 19.25
Cape Verde
2004 15 15
Central African Republic 2001 18 19
Chad
1999 18 18
Comoros No VAT. Consumption tax levied on all imported goods and on production activities and commercial and non-commercial services.
Congo (DRC)
2012 16
Congo (Republic)
1997 18 18 5
Djibouti 2009 10
Egypt 1991 2015 (new)
10
10 10
1.2 – 45 5, 15, 20, 30
Equatorial Guinea
2004 15 15 6
Eritrea
Sales tax form. Rate depends on schedule it falls into.
Ethiopia
2002 15 15 0
Gabon 1995 18 18 5, 10
Gambia
2013 15 0
Ghana 1998 2013 (new)
10
15 15
2.5, 5, 3 5
Guinea
1995 18 18 0
Guinea-Bissau
No VAT. Does however have a general sales tax
Ivory Coast 1960 8 18 9, 21.31
Kenya
1990 17 16 0
Lesotho
2001 14 14 5
Liberia Liberia has a goods and services tax in the form of a cascading tax, and not on value added to each item.
Libya
No VAT
Madagascar 1962 20 0
Malawi
2005 35 16.5 0
Mali
1991 17 18 5
Mauritania
1995 14 16 18
Mauritius
1998 10 15 0
Morocco
1986 19 20 7, 10, 14
Mozambique
1999 17 17 0
Namibia
2003 15 15 0
Niger
1986 12 19 5
Nigeria 1993 5 5 0
Rwanda
2001 15 18 0
Sao Tome and Principe No VAT or sales tax, however, some sectorial consumption taxes levied; VAT due to be introduced in 2018
Senegal
1980 20 18 10
Seychelles
2013 15 0
Sierra Leone General sales tax, no VAT
Somalia
Law not fully operational due to civil unrest
South Africa
1991 10 14 0
South Sudan
No VAT, but sales tax applies
Sudan
2000 10 17 0
Swaziland 2012 14 0
Tanzania
1998 20 18 0
Togo
1995 18 18 0
Tunisia
1988 17 18 12, 6
Uganda
1996 17 18 0
Zambia 1995 20 16 0
Zimbabwe
2004 15 15 0
As economic pressures arose and government needed more tax revenues, countries started to implement new
taxes such as VAT, or increasing existing tax rates. The West African Economic and Monetary Union (WAEMU)
countries were some of the first to implement VAT in Africa, followed by the Central African Economic and
Monetary Community (CEMAC) countries. Lack of harmonisation became problematic, especially regarding
cross border trade. In order to achieve greater harmonisation so as to simplify cross border trade and reduce
waiting times at border post,9 the WAEMU countries amended their original VAT rates so as to adopt a common
18% rate, except for Niger, which levied 19%; similarly the East African Community (EAC) countries
9 P. Letete, “Between tax competition and tax harmonisation: Co-ordination of value added taxes in SADC member states”
(2012) Law Democracy and Development 16, 119-138.
implemented a uniform VAT rate of 18%, with only Kenya applying a VAT rate of 16%. The harmonisation of
domestic consumption taxes in the WAEMU and CEMAC countries is now in line with international practices, with
the various domestic taxes grouped into only two main categories, namely VAT and excise duties, both subject
to moderate rates .10
Due to administrative problems arising where multiple VAT rates are applied, a tool to combat VAT fraud would
be to only have a single non-zero VAT rate11. From the table above, it is evident that 29 countries only have a
single VAT rate to minimise exposure to fraud. Benin and Senegal reconsidered their VAT systems in 1991
already when their multi-rate system was scrapped and only a single non-zero VAT rate is now applied. Kenya
also replaced its VAT system in 2013 by broadening its VAT base and making its agricultural inputs exempt
where it was previously zero-rated12. Kenya was followed by its neighbour, Tanzania, introducing their new VAT
system in July 201513.
The Southern African Development Community (SADC) is now one of the most important economic integration
groups in the African continent, with 15 member countries. The SADC includes a memorandum calling for tax
coordination and harmonisation between these countries to harmonise the administration of indirect taxation.14
On this basis, it has also achieved some level of VAT harmonisation on cross border trade - which is a high risk
area for fraud to occur - by introducing a harmonised form (SAD 500), where goods crossing the border are
declared. These forms can also be submitted electronically before the import or export takes place. This
documentation will be checked again by officials at the border post of the import country, where the import VAT
payable will be calculated. In order to minimise VAT fraud and create better administration harmonisation, the
South African Revenue Service (SARS) and Lesotho Revenue Authority entered into an agreement, whereby the
importer does not need to pay import VAT on indirect imports and then claim it back from the exporting country;
instead, the purchaser just submits the relevant documentation and the VAT is settled between the revenue
authorities.15 Swaziland also entered into an agreement with South Africa to improve the VAT refund scheme.16
Although harmonisation between countries presents significant advantages for cross-border trade, it is not
always achieved. Differences between the tax bases remain, where the countries zero-rate or exempt different
products; the threshold at which a vendor should register for VAT differs; and the rules for refunds of VAT credits
differs;17 and clear place of supply of service rules are also lacking, creating uncertainty as to which country
should levy the VAT.18 The fact that countries are at different levels of development, makes it more challenging to
10 L. Doe, “Harmonization of Domestic Consumption Taxes in Central and Western African Countries” (2006) International
Monetary Fund Working Paper WP/06/8. 11 A. Marking, Trade Liberalization and Tax Reforms in Cape Verde, 2010. 12 Cnossen, 2015. n. xx above. 13 EY, 2016. n. xx above. 14 P. Letete, 2012. n. xx above. 15 A. Jitsing and M. Stern, VAT Practices Within SACU and Possibilities for Harmonisation (2008). 16 International Monetary Fund, Kingdom of Swaziland (2015) IMF Country Report No. 15/353. 17 L. Doe, 2006. n. xx above. 18 H. Peterson, Tax Systems and Tax Harmonisation in the East African Community (EAC) (2009).
apply a fully uniform VAT system, and in general there is a sense that deeper economic integration first needs to
be achieved before further tax harmonisation can be achieved.19
Measuring VAT Fraud and Evasion in African Countries
Due to a lack of information on the topic, it is very difficult to measure the extent of VAT fraud. One measure that
could be used partially is referred to as the VAT compliance gap, being the difference between the actual VAT
revenue collected and the potential VAT revenue that could be collected. However, the compliance gap is not
always arising due to VAT fraud, but could also be because of a lack of understanding the law, tax avoidance,
and other factors.20 The VAT compliance gap for South Africa in the period 2007–2012 fluctuated between 5%
and 10%, which is low by international standards, which raises questions particularly given the well-known high
levels of informality in the country. Another measure which could partially be used is the c-efficiency ratio, which
is widely used to determine how well a VAT system performs. It gives the ratio between the VAT revenue
collected to the amount that could have been collected on total consumption (GDP final consumption) at the
standard VAT rate, should the law be perfectly enforced.21 Table 3 below summarises the c-efficiency ratios for
the African countries.
Table 3: C-efficiency ratios in African countries22
Country C-efficiency Country C-efficiency Country C-efficiency
Algeria 0.51 Ghana 0.39 Niger 0.11
Benin 0.45 Guinea 0.25 Rwanda 0.27
Botswana 0.61 Ivory Coast 0.11 Senegal 0.55
Burkina Faso 0.28 Kenya 0.39 Seychelles 0.87
Cameroon 0.3 Lesotho 0.48 South Africa 0.67
Cape Verde 0.65 Madagascar 0.15 Tanzania 0.31
Central African Republic 0.14 Malawi 0.34 Togo 0.43
Chad 0.14 Mali 0.52 Tunisia 0.5
Congo (Rep) 0.31 Mauritania 0.52 Uganda 0.2
Egypt 0.4 Mauritius 0.58 Zambia 0.34
Equatorial Guinea 0.15 Morocco 0.64 Zimbabwe 0.64
Ethiopia 0.11 Mozambique 0.35
Gabon 0.21 Namibia 0.56
From this table, it is evident that the country with the most efficient VAT system is Seychelles with an efficiency
ratio of 87%. It is followed by South Africa, Cape Verde, Morocco, Zimbabwe and Botswana with efficiency ratios
over 60%. The rest of the countries have a c-efficiency of below 60%.
19 P. Letete, 2012. n. xx above. 20 European Court of Auditors, Tackling Intra-Community VAT Fraud: More Action Needed, 2016. 21 International Monetary Fund. South Africa: Technical Assistance Report – Revenue Administration Gap Analysis Program
– the Value-Added Tax Gap (2015) IMF Country Report No. 15/180. 22 S. Cnossen, Mobilizing VAT Revenues in African Countries, 2015.
Fraud can be defined as an “intentional perversion of truth for the purpose of inducing another in reliance upon it
to part with some valuable thing belonging to him or to surrender a legal right.”23 The main contributors to VAT
fraud are:
Inflated refund claims: vendors claim refunds on fictitious invoices. As this gives vendors the opportunity
to receive back public funds, this is one of the most common types of fraud;24 and
Missing trader or carousel fraud: which involves cross border transactions where goods are purchased
from another country tax free, sold at VAT inclusive prices but then the trader disappears before paying
the output tax over to the revenue authority. This is the most vulnerable form of VAT fraud as it is cross
border and involves more than one taxing authority.25
The sub-Saharan African countries have large informal sectors which are often coupled with weak tax
administration and a lack of political support. This leads to problems with VAT such as evasion, and at times
fraud. The shadow economy in developing countries is important to consider when considering the design and
operation of VAT, as “VAT evasion, the size of the underground economy and corruption are closely linked”. 26
Countries with a larger informal sector which is harder to tax due to its nature of trading, such as African
countries, are very dependent on revenue from indirect tax,27 and thus it is crucial to minimise evasion and fraud
relating to it. Some firms in the informal sector are not caught in the tax net, as they are not registered for VAT,
and therefore cannot claim input tax on items purchased for the business,28 but this is far from being the case as
regards all informality, as much of it takes the form of underreported sales.
In a study done in 2000 where the size of the informal sectors in various countries was determined, it is noted
that the average informal economy as a % of Gross National Product (GNP) in 26 Asian countries was 26% and
18% for 16 Organisation for Economic Co-operation and Development (OECD) countries, whereas this average
for 23 African countries was 42%.29 These results are summarised in table 4 below, along with the size of the
shadow economy in 2006.
Corruption can be defined as “the misuse of power for private gain” and, among others, include fraud30. This is
often due to African countries, although rich in natural resources, experiencing a lot of poverty and high levels of
inequality.31 Transparency International measures the perceptions of corruption as seen by business people and
country analysts. A score between 0 and 10 is awarded, where 10 is very clean and 0 is highly corrupt. Of the
23 P. Gottshcalk, “Categories of financial crime” (2010) Journal of Financial Crime, 17(4), 441 - 458. 24 Bird and Gendron, 2007. n xx above. 25 GTZ Sector Programme Public Finance, Addressing Tax Evasion and Tax Avoidance In Developing Countries, (2015). 26 Bird and Gendron, 2007. n xx above. 27 J. Alm, J. Martinez-Vazquez and F. Schneider,‘Sizing’ the problem of the hard-to-tax (2004). 28 Bird and Gendron, 2007. n xx above. 29 F. Schneider, Size and Measurement of the Informal Economy in 110 Countries Around the World (2002) Rapid
Response Unit, World Bank. 30 K. Sylla, Challenges To Democratic Governance in Developing Countries. Defining corruption in the cultural context of
Sub-Saharan Africa. (Switzerland: Springer International Publishing 2013). 31 I. Carr, “Corruption, the Southern African Development Community Anti-corruption Protocol and the Principal—Agent—
Client Model” (2009) International Journal of Law in Context, 5(2) 147–177.
167 countries measured in 2015, only 11 of the 54 African countries lie in the top 70 on the “clean” side. Only 6
countries scored above 5. Table 4 below gives the index score given to each country, as well as its ranking out of
the 167 countries that have been measured.
Table 4: Corruption index, c-efficiency ratio, size of the shadow economy and size of the informal economy
Country Corruption
Index32
Country rank
/167
C-efficiency
ratio33
Shadow
economy
(% of GDP,
2006)34
Informal
economy
(% of GNP,
1999/2000)35
Algeria 3.6 88 0.51 30.9 34.1
Angola 1.5 163
Benin 3.7 83 0.45 48.3 45.2
Botswana 6.3 28 0.61 32.7 33.4
Burkina Faso 3.8 76 0.28 40.6 38.4
Burundi 2.1 150 39.7
Cape Verde 5.5 40 50.1* 36.8
Cameroon 2.7 130 0.3 32.2 32.8
Central African Republic 2.4 145 0.14 46.9
Chad 2.2 147 0.14 41.9
Comoros 2.6 136
Congo 2.3 146 45.9
Congo, Dem. Rep. 2.2 147 29.3*
Côte d’Ivoire 3.2 107 35.3* 43.4 39.9
Djibouti 3.4 99
Egypt 3.6 88 0.4 34.1 35.1
Equatorial Guinea … … 0.15
Eritrea 1.8 154
Ethiopia 3.3 103 0.11 37.6 40.3
Gabon 3.4 99 0.21
Gambia 2.8 123
Ghana 4.7 56 0.39 42 38.4
Guinea 2.5 139 0.25 41
Guinea-Bissau 1.7 158
Kenya 2.5 139 0.39 33.8
Lesotho 4.4 61 0.48 30.2
Liberia 3.7 83
Libya 1.6 161
Madagascar 2.8 123 0.15 39.6 39.6
Malawi 3.1 112 0.34 41.9 40.3
Mali 3.5 95 0.52 41.6 41
Mauritania 3.1 112 0.52 34.5
Mauritius 5.3 45 0.58 22.8
Morocco 3.6 88 0.64 34.8 36.4
Mozambique 3.1 112 0.35 39.6 40.3
32 African Economic Outlook, Statistics. Table 21 – Corruption perceptions index (CPI) (2016).
<www.africaneconomicoutlook.org/en/statistics> accessed 26 August 2016 33 Cnossen, 2015. n. xx above; International Monetary Fund, Revenue Mobilization in Developing Countries, March 2011. 34 F. Schneider, A. Buehn and CE. Montenegro, Shadow Economies All Over the World, New Estimates for 162 Countries
from 1999 to 2007 (2010). 35 Schneider, 2002. n xx above.
Namibia 5.3 45 0.56 28.8
Niger 3.4 99 0.11 39.9 41.9
Nigeria 2.6 136 22.9* 57.9
Rwanda 5.4 44 0.27 39.6
Sao Tome and Principe 4.2 66
Senegal 4.4 61 0.55 43.2
Seychelles 5.5 40 0.87
Sierra Leone 2.9 119
Somalia 0.8 167
South Africa 4.4 61 0.67 27.4 28.4
South Sudan 1.5 163
Sudan 1.2 165
Swaziland … …
Tanzania 3.0 117 0.31 54.8 58.3
Togo 3.2 107 0.43 35.4
Tunisia 3.8 76 0.5 36.4 38.4
Uganda 2.5 139 45.9* 42.9 43.1
Zambia 3.8 76 0.34 49.3 48.9
Zimbabwe 2.1 150 0.64 59.4
As mentioned, “VAT evasion, the size of the underground economy and corruption are closely linked”36, although
it is not always as clear and direct as can be seen in the table above. In Nigeria it is evident that the perceived
corruption is very high and thus, this perception coupled with the feeling of not wanting to give to a corrupt
government, illiteracy, poor record keeping, and poorly remunerated tax officials, results in administrative
efficiency being low, and all lead to high probably of tax fraud and evasion. Collusion between businesses and
tax authorities results in the governments being cheated.37
Cultural differences in countries can play an important role in understanding perceptions of fraud, for example in
the form of bribes. In some African traditions, the giving of gifts is a sign of politeness, respect and trust, where
as someone from another culture might view this as a bribe and condemn it.38 There are conflicting views within
African countries as the Western/European descendants staying in these countries view this gift giving process
different to the traditional African communities39. Personal and social norms are also factors influencing
voluntary tax compliance. Personal norms include religious norms, which differs from country to country, and
even person to person. Furthermore, due to lack of resources especially in developing countries, education is not
what it should be and due to the complexities of the law, most taxpayers do not have sufficient educational
background to understand it. Political affiliation also affects tax compliance. Studies have found that more liberal
supporters are less compliant than social democratic supporters.40
VAT Anti-Fraud in African Countries
36 Bird and Gendron, 2007 n. xx above. 37 AE. Ezeoha and E Ogamba, “Corporate Tax Shield or Fraud? Insight from Nigeria” (2010) International Journal of Law
and Management 52(1), 5 – 20. 38 A. Haynes, “The Struggle Against Corruption — A Comparative Analysis" (2000) Journal of Financial Crime 8(2), 123-135. 39 Sylla, 2013. n xx above. 40 E. Hoffman, E. Hoelzl and E. Kirchler, “Preconditions of Voluntary Tax Compliance: Knowledge and Evaluation of
Taxation, Norms, Fairness and Motivation to Cooperate” (2008) Journal of Psychology 216(4), 209 – 217.
In order to combat VAT fraud and evasions, countries have taken various measures, the most common of which
is levying a penalty where the VAT legislation is not complied with.41 This can be due to non-registration where
the business should be registered, filing returns late, or making late payment. These countries also charge
interest on the outstanding taxes and penalties payable by the vendor. Especially where the penalty rates are
high, it is probable that the income declared is higher due to people’s risk aversion42. It would encourage
voluntary compliance when punishing penalties are charged43.
Tax fraud is a serious concern in many countries. In 2001 in Namibia, tax fraud was estimated at 9% of Gross
Domestic Product (GDP). Namibia has an Anti-Money Laundering regime in place to combat such evasion and
the most of the Namibian Financial Intelligence Unit’s intelligence reports are to the Inland Revenue Authority.
Similarly, other developing countries have also introduced anti-money laundering measures to fight against the
receipt of ill-gotten money.44
Combatting fraud is most effective where it is not just the revenue authorities that are involved, but the public as
well. Use is often made of whistle-blowers, said to support prosocial behaviour, defined as “positive social
behaviour that is intended to benefit other persons”45. In South Africa, SARS has a link on its website where a
“suspicious activity” can be reported. This includes VAT fraud relating to the importation of goods where import
VAT should be declared, reporting a person or business that is supposed to be registered as a VAT vendor, but
is not, or someone claiming a VAT refund that is fraudulent46. Similarly, Kenya also encourages people to report
tax evasion, fraud and corruption, either in person at the Commissioner General, by mail, telephone, fax or e-
mail47. Another rewarding tool to combat fraud is the monetary incentive offered to people who report taxpayers
that are not compliant. A reward is paid in Malawi based on the value of the amount evaded and reported48.
Depending on the client, some clients first want a firm’s tax compliance certificate before appointing them to do
certain work for them. In order to simplify this process and for clients to obtain this information more easily, SARS
has a new system where a taxpayer’s tax compliance status can be viewed. This certificate will only be clear if a
number of requirements are met, such as that your tax returns and supporting documents, if required, have been
submitted, payment of all taxes has been made and that you are registered for all taxes you should be registered
41 EY, 2016. n. xx above. 42 MG, Allingham and A. Sandmo, “Income Tax Evasion: A Theoretical Analysis” (1972) Journal of Public Economics (1972)
323-338. 43 RE. Krever, VAT in Africa (Pretoria: Pretoria University Law Press 2008) 44 S. Yikona, B Slot, M Geller, B Hansen and F el Kadiri, Ill-gotten Money and the Economy: Experiences from Malawi and
Namibia, 2011. 45 JB. Dozier and MP. Miceli, “Potential Predictors of Whistle-Blowing: A Prosocial Behavior Perspective” (1985) Academy of Management Review 10(4), 823-836. 46 SARS, Report a Suspicious Activity, 2016. <www.sars.gov.za/TargTaxCrime/ReportCrime/Pages/Report-a-suspicious-
activity.aspx> accessed 26 August 2016 47 Kenya Revenue Authority, Building Taxpayers Trust Through Facilitation for Enhanced Tax Compliance.
<http://kra.go.ke/index.php/about-kra/customer-service-directory/office-of-the-cg/reporting> accessed 26 August 2016 48 C. Chiumya, Counteracting Tax Evasion in Malawi: An Analysis of the Methods and Quest for Improvement (2006) MPRA
Paper 9892.
for. If the community as a whole supports such initiatives and only contract with tax compliant suppliers, this will
already improve the compliance of taxpayers in the country as a whole49.
Registering as a VAT vendor is not an easy task and this process was complicated and made difficult in South
Africa in order to prevent VAT fraud where businesses register and claim input tax which is not valid. This delay
in the registration process was however not an effective way to combat VAT abuse50. A “single registration
system” has been implemented in May 2014 where a person or business has one unique profile at SARS that
contains all of its tax affairs51. This will improve the time it takes for first time registration to be processed, and
SARS will then also be able to better compare information. I am of opinion that checks can then be done by
viewing the income tax to determine whether the taxpayer should then not also be registered for VAT if he is not.
People do not like to struggle and waste their time. If they are already contemplating not complying, they will not
be compliant if they struggle. SARS is focussed on improving electronic systems to ensure ease of compliance52.
When an enterprise wants to set up an investment project in Ghana, it is obliged to register with the Ghana
Revenue Authority and must also register for VAT.53 In order to combat fraud, Benin’s revenue agency deployed
more staff to the units dealing with fraud and implemented stronger controls, such as improving the equipment
and number of staff that collects the revenue.54
The Republic of the Congo introduced a unique identification number whereby each registered taxpayer is given
this unique number, improving the tracking and administration for the revenue authority.55
It has been said that VAT registration thresholds should not be set too low,56 as this creates greater risks for tax
evasion. South Africa increased its tax threshold from R300 000 to R1 000 000 in 2009, with the aim of reducing
administrative costs, and the possibility of fraud taking place.57 This is, however, a controversial view as much
will depend on the level of tax literacy of taxpayers, as well as the administrative costs involved in running a low
threshold system.
49 SARS, Managing Your Tax Compliance Status With SARS, 2016.
<www.sars.gov.za/ClientSegments/Individuals/TCS/Pages/default.aspx> accessed 26 August 2016 50 J. Roeleveld and C. De Wet,‘ South Africa’. In: T. Ecker, M. Lang and I Lejeune, The Future of Indirect Taxation
(Netherlands: Kluwer Law International 2012). 51 SARS, Introduction of new single registration system at SARS, 2014. 52 B. Schlenter, “The Taxing Business of Money Laundering: South Africa” (2013) Journal of Money Laundering Control
16(2), 126 – 141. 53 Ghana Embassy, Frequently Asked Questions and Answers (Part 1), 2016.
<www.ghanaembassy.org/index.php?page=frequently-asked-questions-and-answers-part-1#main> accessed 30 August 2016 54 International Monetary Fund, Benin, (2011) IMF Country Report No. 11/60. 55 International Monetary Fund, Republic of Congo: Poverty Reduction Strategy Paper – Annual Progress Report, IMF
Country Report No. 10/69 (2010). <www.imf.org/external/ns/search.aspx?hdCountrypage=&NewQuery=congo+country+report&search=Search&filter_val=N&col=SITENG&collection=SITENG&lan=eng&iso=&requestfrom=country&countryname=&f=> accessed 30 August 2016 56 Bird and Gendron, 2007. n xx above. 57 SARS, 2014. n xx above.
Mali followed the recommendation of an International Monetary Fund mission and increased its VAT threshold
from CFAF 30 million, to CFAF 50 million and then to CFAF 100 million, making it optional for businesses that
are below the threshold to register for VAT.58 This is meant improve the administration of VAT.
Since one of the largest risks of VAT fraud is the false claims of input tax, most countries require that the vendor
claiming the input tax is in possession of a valid tax invoice. SARS for example, sets out the requirements of
what exactly must be indicated on the tax invoice for it to be valid.59 Similarly, before input tax paid on importation
can be reclaimed, the vendor must be in possession of the relevant documents. For instance, before a VAT claim
can be made in Ghana, the vendor must have a valid customer entry, an assessment notice and the tax invoices
for the services received60. The Kenya Revenue Authority is asking for proper documentation to be submitted by
the VAT vendors before refunds claimed will be paid. One of these documents is an auditor’s certificate where
the claim exceeds Ksh 1 million. This is a good tool to ensure that large false claims are not made61.
South Africa has information-sharing agreements in place which should improve the recovery of money which is
not visible in the financial system62. Cameroon’s tax authority has systems in place where information is shared
between them and the customs services. This reduces fraud on cross-border activities.63
SARS conducts audits, such as in 2011 when 165 of the richest tycoons were audited, as it was estimated that
the tax gap relating to these business persons alone amounted to R20 billion 64. VAT audits are an effective tool
to pick up VAT fraud. In South Africa, the VAT audits show that up to 60% of reporting is inaccuracy. The
construction industry is of great concern where 70% of the audited VAT cases indicate wrong disclosures65.
SARS brought in an anti-fraud measure whereby people may no longer delay the audit process so that
prescription can take place and they no longer be liable for the tax liability. Businesses took longer to provide the
requested documentation during the audit process in the hope that the audit period prescribes before an
additional assessment is raised. SARS may now extend the audit process by the time of the delay by the client66.
58 International Monetary Fund, Mali, (2013) IMF Country Report No 13/355; International Monetary Fund, Mali Technical
Assistance Report – Tax Policy – Diagnostic Assessment, (2016) 59 SARS, Tax Invoices, 2016. <www.sars.gov.za/ClientSegments/Businesses/Government/Pages/Tax-Invoices.aspx>
accessed 26 August 2016. 60 Ghana Revenue Authority, Value Added Tax, 2016. <www.gra.gov.gh/index.php/tax-information/value-added-tax> accessed 26 August 2016 61 Kenya Revenue Authority, VAT Refunds At a Glance, 2004. <www.revenue.go.ke/vat/VATRefundsataglance.html> accessed 26 August 2016 62 B. Schlenter, 2013. n xx above. 63 S. Fambon, Taxation in Developing Countries – Case Study of Cameroon, 2006.
<www.google.co.za/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwiEkK3lndfOAhXpBcAKHS77C7YQFggaMAA&url=https%3A%2F%2Fwww.ciaonet.org%2Fattachments%2F7447%2Fuploads&usg=AFQjCNFO7WxCaFqcLWY5UhYuheoByHSXzg&sig2=LTLBkVXqCi6ySFvL9j4p3Q&bvm=bv.129759880,d.d2s&cad=rja> accessed 26 August 2016 64 Schlenter, 2013. n xx above. 65 SARS, Compliance Programme 2012/13 – 2016/17, 2014.
<www.sars.gov.za/pages/Results.aspx?k=Compliance%20Programme> accessed 26 August 2016 66 N. Napier, SARS Hits Back: Taxpayers May No Longer Frustrate the Audit Process in the Hope of Prescription. Tax
Technical, Iss 27 2016, 2016.
Malawi pays a lot of attention to tax audits. Every taxpayer needs to be audited every three years. The Malawi
Revenue Authority has a whole division involved in the tax audits and criminal investigations67. Ghana
commissioned a task force of 40 members in August 2015 with the task of, amongst others, ensuring that
taxpayers are filing their VAT returns and to ensure that non-compliant taxpayers pay their outstanding tax
liabilities68.
SARS has followed a naming and shaming approach, whereby they release a report of “corruption crackdown” to
show their commitment to combat crimes such as fraud and abuse of the tax system69. This is a good deterrent
as people feel ashamed and guilty if they are named and shamed in public70. Ghana also followed suit and will
now also name and shame persons who do not submit tax returns or avoid timely payment of taxes.71
The reverse charge mechanism is not always practical as, for instance with the supply of e-commerce,
customers who import these services are supposed to declare this transaction and pay import tax, but they do
not. To combat this non-declaration, SARS broadened the scope of the definition of an “enterprise” and who
should be liable to register as a VAT vendor by including any foreign business making taxable supplies of more
than R50 000 in electronic services to South African residents at the end of any month72. The supplier thus has to
register as a VAT vendor.
Another tool implemented by SARS is the IT14SD, which is a reconciliation that has to be completed by
companies and close corporations, if selected for verification by SARS. From a VAT perspective, this form
requires a reconciliation between the total turnover declared for income tax purposes, against the total supplies
declared in all the VAT returns for that year of assessment. A reconciliation must also be done between the total
input tax claimed and cost of sales declared for income tax purposes. Ideally, this reconciling amount should be
below R100, otherwise reasons must be provided.73 It should thus be easier when comparing VAT information
with income tax information to pick up where there is an over-charge of input tax claims or an under-declaration
of output tax on sales.
SARS has improved its IT systems by building in an automated risk assessment tool which is used to trigger a
variance review. If a variance review is requested, the vendor needs to submit supporting documents,
67 Chiumya, 2006. n xx above. 68 Government of Ghana, Ministry of Finance, Ghana Revenue Authority Inaugurates Special Taskforce, August 2015.
<www.mofep.gov.gh/?q=content/ghana-revenue-authority-inaugurates-special-taskforce> accessed 26 August 2016 69 Polity.otg.za, SARS: Statement by the South Africa Revenue Services, Enforcement and Customs Operations for June
2014, 2014. <http://www.polity.org.za/article/sars-statement-by-the-south-africa-revenue-services-enforcement-and-customs-operations-for-june-2014-16072014-2014-07-16> accessed 26 August 2016 70 HG. Grasmick, RJ. Bursik and JK. Cochran, "Render Unto Caesar What Is Caesar's: Religiosity and Taxpayers'
Inclinations to Cheat” (1991) The Sociological Quarterly 32(2), 251-266. 71 E. Davis, B&FT, New Law to Name and Shame Tax Evaders,16 August 2016. 72 SP. Van Zyl, “The Collection of Value Added Tax on Cross-Border Digital Trade – Part 1: Registration of Foreign
Vendors” (2014) Comparative and International Law Journal of Southern Africa 47, 154 – 186 73 SARS, How To Complete the Supplementary Declaration (IT14SD) Form for Companies and Close Corporations, not
dated. <www.google.co.za/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwjyoKL15MvOAhWiI8AKHQBTC20QFggcMAA&url=http%3A%2F%2Fwww.thesait.org.za%2Fresource%2Fresmgr%2Fsars_how_to_complete_the_sup.pdf&usg=AFQjCNFR3e_oI9qHHwmwU7cYm1eOt0Gm3w&sig2=9muLJwDhN_scB9-Au1306A&cad=rja> accessed 26 August 2016
substantiating the information completed on the VAT return74. Vendors can also submit their returns online via e-
filing, which is much easier than standing in a queue for a long time to submit the return. Kenya also introduced
an iTax system whereby tax returns can be filed online75. Similarly, Algeria also implemented a system for online
filing of tax returns and electronic payment.76
The ease of collection of taxes can also improve compliance. “Countries, such as Nigeria, Rwanda, Tanzania
and Uganda, have also developed collection systems through the banks”. Countries such as Uganda,77
Mauritius, Morocco, South Africa and Tunisia also introduced electronic filing and payment procedures.78 Where
submission of returns, payment and monitoring thereof can take place on line, such as in Tanzania and South
Africa, this is more efficient and should thus reduce VAT fraud.79
Rwanda implemented a very advanced technological system whereby the Rwanda Revenue Authority can, close
to real time, track and monitor transactions through digital invoicing. From this system, audits can also be
conducted more effectively. The VAT law requires all registered VAT vendors to be in possession of a certified
electronic billing machine that has a sales data controller and a certified invoicing system. Through this, the
Rwanda Revenue Authority can track all transactions80. They also implemented an electronic fiscal device,
whereby each registered VAT vendor needs to install this device. It records all sales transactions and memory
cannot be erased, thus decreasing the risk that sales are under-declared81. Similarly, the Kenya Revenue
Authority enforces that each registered VAT vendor must have an electronic tax register, which captures all sales
transactions and has read only memory82.
When Gabon implemented its VAT system, it already had a basic computer system in place whereby it can track
when vendors file late, or stop filing their returns, which can then be followed up. Since the start, receipts and
notices have been issued electronically only, with 80% of the returns being submitted on time83.
Similar to Gabon, Mauritius also has a basic computerized system whereby it allocates a taxpayer identification
number to each VAT vendor, and also monitors late or stop filers. In addition to this, a school was started
whereby the staff that will be dealing with the VAT returns and the auditors were trained. Training was also given
74 BDO, New VAT system has businesses tearing their hair out, 2011. <www.bdo.bw/News/Pages/New-VAT-system.aspx>
accessed 26 August 2016 75 Kenya Revenue Authority, iTax, not dated. <https://itax.kra.go.ke/KRA-Portal/> accessed 26 August 2016 76 International Monetary Fund, Algeria 2013 Article IV Consultation (2014) IMF Country Report No. 14/32 77 Uganda Revenue Authority, Developing Uganda together. 78 J. Bodin and V Koukpaizan, The Rise of VAT in Africa – Impact and challenges. International VAT Monitor, May/June
2009, 2009. 79 GTZ Sector Programme Public Finance, 2015. n. xx above. 80 RT. Ainsworth and G. Todorov, Rwanda – Cutting-Edge VAT Compliance, 2013. 81 C. Kandiero, Malawi Revenue Authority to Counter Fraud Electronically. Bnltimes, 2013.
<http://timesmediamw.com/malawi-revenue-authority-to-counter-fraud-electronically/> accessed 26 August 2016 82 Kenya Revenue Authority, Electronic Tax Register Overview 2011 – 2012, 2011. 83 C. Grandcolas, The Occasional Failure in VAT Implementation: Lessons for the Pacific. Asian-Pacific Tax Bulletin,
January/February 2005, 2005.
free of charge to businesses and accountants. All these and other processes ensured that in 1999 already,
Mauritius had a return compliance rate of over 95%84.
Education plays an imperative role in improving compliance and thus reducing VAT fraud. By informing taxpayers
of how the VAT works, taxpayers should feel more motivated to not evade tax. In Malawi brochures are issued to
explain the taxes and the penalties involved, and public forums are held where taxpayers meet face to face with
tax officials to get advice on their tax matters. Discussions regarding taxes are also held on national radio85.
The Rwanda Revenue Authority provides education and services to its taxpayers by, for instance, informing the
taxpayers why it is important for them to contribute to the tax system. They also have a “taxpayer’s week” and
involves the political leaders who should also communicate the importance of their tax contributions86.
Not only should taxpayers be educated, but tax officials should also be trained in order to be able to handle the
returns and assessments of the taxpayers. Tax officials in Ghana are trained by Dutch tax officials for instance,
guiding them on tax assessments that are to be issued to multinational companies87.
Kenya and Ghana realised that they have limited administrative resources and that the most revenue is received
from large taxpayers. They thus set up large taxpayer units, which reduces costs to comply and should thus also
reduce fraud. This was particularly successful in Ghana where, in two years, the revenue collected increased by
86%88. Cameroon on the other hand improved its tax administration by creating tax centres for small and
medium-size enterprises. This doubled the number of taxpayers, leading to an increase in tax revenue.89 Egypt’s
tax administration also improved since it created medium and large taxpayers’ offices to assist these taxpayers
to file and pay.90
36 of the African countries are members of the African Tax Administration Forum (ATAF). ATAF’s mission is to
enhance administrative efficiency and effectiveness in order to improve the living standards of Africans91. If
partnerships are created between countries, administration between them should improve, decreasing fraud on
cross border transactions.
III. Addressing VAT Fraud through Legal Design
Fighting VAT fraud requires an integrated approach particularly in terms of tax base design, and design of
compliance measures and incentives.
84 Grandcolas, 2005. n. xx above. 85 Chiumya, 2006. n xx above. 86 GTZ Sector Programme Public Finance, 2015. n. xx above. 87 Government of the Netherlands, Government Stepping Up Support To Developing Countries on Tax Issues, 2015.
<www.government.nl/latest/news/2015/06/20/government-stepping-up-support-to-developing-countries-on-tax-issues> accessed 26 August 2016. 88 GTZ Sector Programme Public Finance, 2015. n. xx above. 89 International Monetary Fund, Cameroon (2015) IMF Country Report No. 15/331 90 International Monetary Fund, Middle East Regional Technical Assistance Center (2009) 91 African Tax Administration Forum, Overview/Member countries. <www.ataftax.org/en/about/Pages/Overview.aspx>
accessed 26 August 2016
Tax Base
Exclusions from the tax base create massive opportunities for evasion and fraud, and divert administrative
resources. Thus, a broad VAT base is one of the most important elements of fighting evasion and fraud.
Tax Compliance
Dismissed for many years as fait accompli, the fight against under-reported sales and VAT black market evasion
is getting a new lease of life through the use of technology based anti-fraud methods. In 2010, inspired by anti-
fraud mechanisms already in use in various countries around the world, the European Commission emphasised
the need, not only for the establishment of benchmarks to measure the performance of national tax
administrations, but also for the facilitation in a systematic manner of exchange between Member States of best
practices for high-risk sectors, such as restaurants, bars, or even bakeries.92 And there are now many of these,
which can be broadly divided into negative and positive incentives to tax compliance.
In terms of negative incentives, one of the most promising technology-based anti-fraud methods is the digital
invoice, first introduced in Brazil. Under the Brazilian model, invoices issued by companies with a turnover above
a certain threshold, must be digital in order to be enforceable; paper invoices are acceptable only as replicas or
evidence of prior digital invoices.93 This model has also the advantage of allowing the electronic matching-up of
invoices. The process of matching-up invoices is not new, and indeed has been in place in South Korea since
1976, but extensive administrative and compliance costs raised questions over its overall benefits.94 Electronic
invoicing proved crucial in overcoming this problem, and in 2010 Israel implemented a new online system, under
which all invoice matching would be done electronically at a massive data-warehouse. The system has
reportedly been a huge success.95 Similarly, in the United States (US), the mandatory use of certified tax
software by high-risk industry sectors, implemented in 2005, has been proved a successful negative incentive to
compliance.96
Alongside specific anti-fraud measures, such as those listed above, the European Commission has also
proposed new methods of collecting and monitoring VAT, broadly defined, by using modern technologies. In this
regard, two proposals are essentially on the table: the so-called split payment method,97 and the data warehouse
92 European Commission, Communication on the future of VAT - Towards a simpler, more robust and efficient VAT system, COM (2011) 851 final, 6 December 2011. See also European Commission, Green Paper on the Future of VAT—Towards a simpler, more robust and efficient VAT system, COM(2010) 695 final, December 1, 2010. 93 For a detailed analysis of how this model works, see R.T. Ainsworth, “Refund Fraud? Real-Time Solution! Digital Security Borrowed from the VAT (Brazil, Quebec & Belgium)” (2012) Boston University School of Law Working Paper 12-15, March 2012. 94 R. Krever, “Combating VAT Fraud: Lessons from Korea” (2014) British Tax Review 3, 329-341. 95 Israel Tax Authority, A Revolution in Value Added Tax, available at: http://www.itdweb.org/documents/A_revolution_of_Value_Added_Tax.pdf 96 W. Hellerstein, “Sales Tax Reform in the United States: The Streamlined Sales Tax Project” (2005) Bulletin for International Fiscal Documentation 59, 170. 97 Based in the original idea of a “VAT trust account” by H.-W. Sinn et al, “The Ifo Institute’s Model for Reducing VAT Fraud: Payment First, Refund Later” (2004) CESifo Forum 5(2), 30-34. For a detailed analysis of this method, see R.T. Ainsworth and B. Madzharova, “Real-Time Collection of the Value-Added Tax: Some Businesses and Legal Implications” (2012) Boston University School of Law Working Paper 12-51, October 2012.
model (SAFT), both of which have already been implemented, at least partially, in some Member States. Whilst
opinions expressed during the consultation process showed divergent opinions, as well as some scepticism,
about both methods, the Commission has stated its commitment to exploring these options further.98 The new
VAT Action paper is part of this approach.
The use of new technologies has given negative incentives to compliance a force, which they had so far lacked.99
Regardless, however, it is unsurprising that positive incentives to compliance have also developed in various
jurisdictions. Whilst this is a relatively new phenomenon, there are now various examples of this approach.
South Korea, for example, has recently introduced a “cash-receipt” system, which rewards final costumers
paying by cash, if they insist on a cash receipt that automatically reports sales to the revenue authority. The
system has reportedly achieved positive results in terms of reducing unreported cash sales.100 Several other
Asian countries, most notably China, successfully run a so-called Lottery Ticket Rewards system, under which
receipts are in effect treated as lottery tickets, with a selected one being awarded a prize, in the form of monetary
compensation.101 This system is also similar to that implemented in the Brazilian State of Sao Paolo, designated
nota fiscal paulista. Implemented in 2007, the Brazilian system rewards all consumers with a 30% rebate on
consumption tax paid, provided an electronic receipt is requested from the seller; it also gives a money prize to
one selected invoice. The system has reportedly led to an increase of up to 10% in reported sales in the
services industry.102
Nearly all the above anti-fraud measures, purporting both positive and negative incentives, have recently been
implemented in a European Union (EU) Member State, through the approval of a massive anti-fraud package. In
May 2011, in the mist of the economic and financial crisis, Portugal became the third EU country to be bailed-out
by the so-called troika, the group composed by the European Commission, the European Central Bank, and the
International Monetary Fund. Whilst the bail-out agreement included the implementation of various VAT
measures,103 one of its flagships being a brand-new, comprehensive VAT anti-fraud strategy. The strategy,
implemented gradually between 2011 and 2013, used a mixture of negative and positive incentives measures
based on the best international practices. Measures implemented included, therefore: an introduction of a
mandatory certified tax software for high-risk industries – based on the US model; mandatory electronic invoicing
and online reporting stored in a data warehouse – based on the Brazilian and the Israeli models; introduction of a
98 See R. de la Feria, “The 2011 Communication on the Future of VAT: Harnessing the economic crisis for EU VAT reform” (2012) British Tax Review 2, 119-133. On the feasibility of applying these methods at an EU-wide scale see PWC, Study of the feasibility of alternative methods for improving and simplifying the collection of VAT through he means of modern technologies and/or intermediaries, Final Report, TAXUD/2009/AO-05, September 20, 2010. 99 Traditionally econometric results suggested that they had no long-run impact, see J. Andreoni et al, “Tax Compliance” (1998) Journal of Economic Literature 36, 844. 100 See R. Krever, n. xx above; and S. Kim, “Federal Income Tax Reform: A VAT and the Cash Receipt System” (2007) Tax Notes 751, 115. 101 See M. Fabbri and S. Hemels, “Do You Want a Receipt? Combating VAT and RST Evasion with Lottery Tickets” (2013) Intertax 41(8/9), 430-443. 102 E. Mattos et al, “Programas de incentivos fiscais sao eficazes? Evidencia a partir da avaliacao do impacto do programa nota fiscal paulista sobre a arrecadacao do ICMS” (2013) Revista Brasileira de Economia 67(1). 103 Most significantly base-broadening, see R. de la Feria, ““Blueprint for Reform of VAT Rates in Europe” (2015) Intertax 43(2), 154-171.
personal income tax credit as a percentage of VAT paid on acquisitions from high-risk industries, such as
restaurants and hairdressers – based on the Sao Paolo model; and a lottery system, designated fatura da sorte,
whereby every week one invoice is rewarded with a high-value car (Audi A4) – based on Asian and Sao Paolo
models.104 The range of measures included in this package makes it difficult, if not impossible, to determine the
success of each individual measure, but the Portuguese Government has reported significant increases in the
reporting of sales, particularly after the introduction of the lottery system.105
General Anti-Fraud Rule: Third-Party Responsabilisation
In addition to the above measures which are design primarily to combat evasion, the introduction of a general
rule determining third-party responsibilisation for fraud, under which a taxable person can be denied VAT rights,
such as the right to deduct, when he/she knew, or should have known that fraud was being committed, presents
itself as particularly effective.
IV. Conclusion: The SLIM VAT
An anti-fraud policy, which takes into account the latest developments across the world in this area, particularly
in terms of technological method and legal design, is a crucial part of the SLIM VAT, as presented here.
Diagram 2: SLIM VAT
104 The results of the lottery are public and can be regularly tracked online at: https://faturas.portaldasfinancas.gov.pt/FatSorte/home.action. 105 L. Tiago, “Facturas com NIF apanham 176 mil novas empresas”, Dinheiro Vivo, 22/04/2014.
SLIM VAT
Simple
ModernLocal
Objective: adapt to socio-
economic realities
Objective: minimise pressure on Tax Administration Methods: minimal exceptions; simplified calculations; broad-based
Objective: adapt to new digital and globalised economy Methods: electronic compliance and payments; use behavioural economics; general anti-fraud rule