Jan 19, 2013

Tax Evasion: Lottery Ticket Reward Policy

In this paper we discuss a complementary tool to the traditional deterrence approach to tax evasion recently adopted by some Asian and Latin-American countries, the Lottery Ticket Reward Policy (onward LTRP). The idea of LTRP is to provide direct incentives to individual customers to request the emission of the sales receipt associated with a business transaction to their counterparts. In many countries a sales receipt is the proof of the existence of a monetary transaction and it contains information relative to the amount of due tax payment. Once emitted the receipt, for business owners becomes difficult if not impossible to hide information regarding business volume and taxable income. Hence a key strategy adopted by business owners in evading sales taxes is to avoid printing the receipt of a business transaction. In fact, as we discuss more in details in section 3, absent any policy intervention, customers have virtually no benefits asking for the business transaction receipt, while they could face high social and moral cost.
The author adds
Implementing LTRP, a central government institutes a lottery and links the participation to this lottery to the possession of sales receipts of business transactions. Specifically, a serial number is printed on any sales receipt and the individual owning the receipt with the number corresponding to the lottery extraction is entitled to claim the prize. 
The author looks at some evidence in different countries, including China. A policy like that one can have important side-effects, but I find it intriguing and the author says it could be useful in certain contexts.  

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