Imagine sitting in front of the TV waiting with baited breath that your numbers will finally come up, and you will have won the lottery. Now imagine that instead of buying a lottery ticket, you are entered into the lottery by providing your receipts to the tax authority. Wait, what you say? The tax authority running a lottery? That would never happen. Well think again, because in two EU countries they are using a tax lottery to boost value added tax (VAT) compliance rates and collections, and many more are considering it.
Slovakia seems to be on the cutting edge of this idea. Here is the scheme. If you make a purchase totaling more than one euro AND obtain a receipt, you can enter that receipt into a monthly lottery. If your receipt is pulled, you can win €10,000, a car, or chance to be on the Price is Right (Slovakian version).
Slovakia started this scheme in the face of falling revenues from value added taxes (like our HST/GST). The tax authority found that businesses were often failing to provide receipts to its customers, a sure sign of VAT tax non-compliance. In addition, there was also evidence that showed that business were providing a fake VAT registration number on receipts. The lottery scheme encourages customers to force businesses to provide receipts, and incentive to complain to the tax authority is one if not issued. Indeed, complaints are reported to have increased from 300 before the lottery to over 7000 after the lottery came into effect. The scheme also provides the tax authority with evidence of phony registration numbers. It killed two problems with one stone.
Portugal has since followed suit, holding its first lottery this month.
Rudyard Griffiths, Munk Foundation recently proffered this on Twitter:
Would such a scheme be suitable for Canada? My inclination is No. Why? Because we do not share essential features with EU countries to make it worthwhile.
It is first important to note the VAT revenues in EU countries like Slovakia and Portugal are much, much more important source of government revenues than they are here in Canada. This is because their rates are higher and their coverage much broader. Because these countries are so reliant on these revenues, they are much more willing AND ABLE to adopt schemes such as the tax lottery.
The second feature of note is that, unlike Canada, EU countries measure their tax gap and know how much revenue they are losing from VAT noncompliance. You need to know how much revenue you are losing to figure out how much it is worth spending on compliance.
The third thing to note is that you also need to know the main features of tax noncompliance in order to devise a scheme that overcomes them. Is the EU, many more purchases are made with cash than with credit or debit. In Canada, we like our credit and debit and receipts are a natural outcome of this preference. When receipts are not issued, it is typically an agreed upon arrangement between the provider and consumer where the savings are of a magnitude that would not be overcome by a lottery. I say this because we would not be offering $10,000 as winnings given the above. Probably more like $100.
So the tax lottery idea is an interesting one and am looking forward to seeing it play out in the EU, but don’t expect it here in Canada anytime soon.