VAT lottery incentives : an opportunity for South Africa?

Abstract

Background: Nine European Union (EU) member countries have introduced receipt-based tax lotteries (value-added tax (VAT) lotteries) in an effort to improve tax compliance in recent years. This acknowledges the fact that the traditional method of tax compliance enforcement through 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. The receipt serves as a lottery ticket that gives the consumer an opportunity to win a prize. The decline in tax compliance in South Africa poses a threat to revenue collection and ultimately government’s ability to meet its spending commitments. South Africa may benefit from implementing a VAT lottery to assist in improved VAT collection. Main purpose of study: This study aims to analyse VAT lotteries implemented in EU member countries in order to determine whether such lottery could improve taxpayer compliance in South Africa. Method: This descriptive study follows a systematic review strategy, using a combination of published studies and grey literature. A pragmatic approach is taken, allowing information obtained to be considered objectively and interpreted subjectively. The study is cross-sectional and identifies each individual VAT lottery as a unit of analysis, following an inductive method of reasoning based on the secondary data obtained. Results: There is a lack of quantitative research on the impact that VAT lotteries have on tax collection and, ultimately, on compliance. Six EU member countries were analysed, with three of these countries showing 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 a success. Research also indicates that the success should not only be measured by additional revenue generated, but by the culture of awareness of compliance created amongst consumers. Conclusions: South Africa’s VAT revenue represents a significant portion of the total tax revenues for the country, and the implementation of a VAT lottery could improve taxpayer compliance in South Africa. It will start a conversation and create an awareness amongst consumers of how they can assist in ensuring transactions are reported, ensuring the South African Revenue Service receives the taxes due to it and enabling government to meet its spending commitments.