Working Paper: CEPR ID: DP16379
Authors: Miguel Almunia; Jonas Hjort; Justine Knebelmann; Lin Tian
Abstract: Are firms sophisticated maximizers, or do they consistently make errors? Using transaction-level data from Ugandan value-added tax (VAT) returns, we show that sellers and buyers report different amounts 79% of the time, despite invoices being easily cross-checked. We estimate that 25% of firms are disadvantageous misreporters—they systematically misreport own sales and purchases such that their tax liability increases—while 75% are advantageous misreporters. Many firms—especially disadvantageous misreporters—fail to report imported inputs they themselves reported at Customs, increasing their VAT liability. On net, unilateral VAT misreporting cost Uganda about US$384 million in foregone 2013-2016 tax revenue.
Keywords: VAT; tax misreporting; Uganda; firm behavior
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm sophistication (L25) | VAT reporting behavior (H25) |
| Advantageous misreporting (G41) | Reduced tax liabilities (H20) |
| Disadvantageous misreporting (D91) | Increased tax liabilities (H29) |
| VAT misreporting (H26) | Cost to Uganda (O22) |
| Strategic behavior (C70) | VAT reporting discrepancies (H26) |
| Low enforcement (K40) | Strategic behavior (C70) |
| Consistent misreporting (C83) | Increased tax liabilities (H29) |