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

Value-added tax (VAT) represents nearly half of Togo's tax revenue but is often undermined by fraud, leading to a shortfall of around 40%, according to the latest statistics. To reduce administrative burdens and improve compliance, the Togolese government introduced an online VAT declaration platform, thus eliminating the need to visit physical tax offices. Despite the potential benefits, adoption has been slow, and the VAT gap-the difference between expected and actual revenue-remains wide.

This research project aims to evaluate whether low-cost interventions can improve VAT compliance alongside the digital platform. We propose to pilot an RCT with three treatment arms: (1) personalized reminders via email or SMS, encouraging timely VAT declarations, and using a 'moral appeal' that emphasizes the importance of paying taxes for national development; (2) personalized reminders but with a 'deterrence appeal,' stressing the consequences of non-compliance, such as fines and audits; (3) a peer information treatment through which firms will be informed about the VAT compliance rates of similar businesses or of their suppliers in the VAT chain. We will also consider some combination of treatments, allowing us to assess the marginal effects of interactions. The control group will operate under the status quo with no intervention.

The impact of these interventions would be measured by changes in timely VAT declarations and payments, and the reduction of the VAT gap. We hope to provide insights into business taxation in Togo and scalable solutions that could improve VAT tax compliance beyond digitalization alone.