Hitting the jackpot
Governments use receipt lotteries to boost tax compliance

They make it harder for businesses to evade value-added taxes

Finance and economicsFeb 28th 2019 edition


The aim is to make it harder for retail businesses to evade taxes. Worldwide, 20-35% of government revenue comes from value-added taxes (VAT) or similar levies on consumption. But as much as a third of what should be collected is thought to be forfeited because businesses under-report revenues. The problem is not business-to-business transactions; firms can usually reclaim any VAT they pay if they keep proper records. But when selling direct to consumers, it is tempting to accept cash without recording the sale. A tax-dodging retailer can undercut law-abiding rivals or pocket a higher margin.


Few countries have studied schemes’ impact. An exception is Slovakia, which has run a lottery scheme since 2013 as one of a range of attempts to reduce its unusually high rate of VAT evasion. In 2014 the finance ministry estimated that the lottery had contributed a very modest €8m ($11m) in annual revenues. But the Brazilian state of São Paulo is so sure its lottery increases tax collection that it grants citizens who give their taxpayer number when making a purchase not just a chance to win a prize, but a rebate of 30% of the sales taxes they have paid.

For governments trying to up the tax take, consumption taxes have appeal. They are less noticeable than income taxes or cuts to public services. But higher rates fall most heavily on poor people, who tend to spend a bigger share of their income. Receipt lotteries allow governments to raise revenue without raising rates. As a bonus, they also increase awareness of tax evasion and encourage citizens to look out for tax cheats.

According to a report for the European Commission in 2017, of the ten European countries with the biggest shortfalls in collection of VAT in 2014-15, nine have, or are setting up, a receipt-lottery scheme. (Italy is the exception.) Though a receipt lottery cannot end evasion on its own, says Jonas Fooken, a researcher at the University of Queensland, adding “a bit of magic” to mundane purchases can help.

This article appeared in the Finance and economics section of the print edition under the headline "Governments use receipt lotteries to boost tax compliance"

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