Mind the VAT: Harnessing Behavioral Insights to Bridge Togo's Tax Gap

Effective tax collection remains a core challenge in many low-income countries. In Togo, where the informal sector dominates economic activity, widespread tax non-compliance continues to undermine the government’s ability to fund public goods and invest in sustainable development. The value-added tax (VAT) accounts for nearly half of total domestic revenue, but its potential remains underutilized due to substantial evasion, particularly among small and medium-sized enterprises (SMEs), which often operate partially or fully outside the formal tax system, leaving a sizable portion of revenue untapped.

In response, the Togolese government introduced an online VAT declaration platform, eliminating the need to visit physical tax offices. Despite its potential benefits, the VAT gap – the difference between expected and actual revenue – remains wide.

This research project, conducted in partnership with the Office Togolais des Recettes (OTR), aims to evaluate whether low-cost interventions can enhance VAT compliance when integrated into the existing digital infrastructure. 

The study leverages newly digitized transaction-level data to identify discrepancies in firms’ VAT reporting behavior. At the core of the intervention is the use of third-party information and peer-based compliance insights to send personalized nudges, with the goal of increasing the perceived visibility of the tax authority and reducing information asymmetries between taxpayers and the enforcement agency.

 By combining deterrence cues, social comparisons, and factual transaction data within a scalable digital system, the project explores whether behavioral insights and administrative innovations can jointly enhance revenue mobilization. The impact of these interventions will be measured through changes in timely VAT declarations, payment behavior, and the reduction of the VAT gap. 

Ultimately, the project aims to generate insights into business taxation in Togo and inform scalable solutions that improve VAT compliance beyond digitalization alone.