Almunia, Miguel and Hjort, Jonas and Knebe, Justine and Tian, Lin, Strategic or Confused Firms? Evidence from “Missing” Transactions in Uganda (July 1, 2021). CEPR Discussion Paper No. DP16379
Are firms sophisticated maximizers, or do they consistently make errors? Using transaction-level data from Ugandan value-added tax (VAT) returns, we show that sellers and buyers report different amounts 79% of the time, despite invoices being easily cross-checked. We estimate that 25% of firms are disadvantageous misreporters-they systematically misreport own sales and purchases such that their tax liability increases-while 75% are advantageous misreporters. Many firms-especially disadvantageous misreporters-fail to report imported inputs they themselves reported at Customs, increasing their VAT liability. On net, unilateral VAT misreporting cost Uganda about US$384 million in foregone 2013-2016 tax revenue.