Presentation on digital merchant payments as a medium for tax compliance at the Rwanda Revenue Authority Quarterly Research Workshop. Access the related paper 'Digital merchant payments as a medium for tax compliance' at: https://shorturl.at/GS029

1. PARTNERS
Digital merchant
payments as a medium of
tax compliance
Rwanda Revenue Authority
Research Workshop
2nd June 2023
Dr Fabrizio Santoro
DIGITAX Research Lead, Component 2

2. Background and motivation

3. • New digital solutions being implemented in
African tax administrations:
• digital financial services-based payment
systems for taxes (e-payment)
• new registration systems that utilize
national (often digital) ID schemes
• digital merchant payments
• Build upon earlier technologies (ITAX, EFDs,
e-filing)
• Huge volumes of tax admin data

4. • New digital solutions being implemented in
African tax administrations:
• digital financial services-based payment
systems for taxes (e-payment)
• new registration systems that utilize
national (often digital) ID schemes
• digital merchant payments
• Build upon earlier technologies (ITAX, EFDs,
e-filing)
• Huge volumes of tax admin data
Broader context of increasing digitalisation of
African economies:
• Internet penetration increasing: over 106 new
users per second in Africa. Ten-fold increase
since 2000
• The ubiquity of mobile phones and mobile
money, and the prevalence of payment
services and fintech – and e-commerce
• Governments investing vast sums in
digitalisation
• national policy agendas, new regulations
• mandating, incentivising take-up with
exemptions (DMP)

5. • DMP: transactions between traders, or between
traders and customers performed with digital
means of payment and without cash
• Rwanda case study
• digital payments expected to reach 80% of GDP
by 2024 (UNCDF 2019)
• MoMo users increased twofold between 2016
and 2020 - penetration rate of 60% amongst
Rwanda’s 7.1 million adults (AFR 2020).
• as many as 99% of urban Rwandan adults and
30% of rural Rwandan adults can reach a
mobile money agent in less than 30 minutes
• Towards a cashless Rwanda (RNPS 2018-
2024)
• MoMo Pay – merchant-specific
• fee waivers and reintroduction
• vibrant private sector

6. Access to
safer, quicker,
formal
payments for
consumers
Reduce
reporting and
accounting
costs
Leave a
digital trail
of data on
sales Increase
monitoring
and
enforcement
Improve
revenue
performance
Digitalisation
in Tax
Digital merchant payments promise to…

7. Research design

8. • Research questions:
• What is the extent of adoption of digital merchant payments in Rwanda?
• Which factors shape adoption?
• What is the impact of adoption on taxpayers’ perceptions and behaviour
• Research design:
• Survey data from 1,135 merchants countrywide – PIT/CIT taxpayers (table)
• Administrative data (registry, VAT/IT returns and payments) from RRA
• 3 FGDs and 4 in-depth interviews (Airtel, Bank of Kigali, Equity Bank, and
MTN)

9. Results

10. - Suppliers
- Employees
- Reasons not
- Reasons yes

12. • What drives adoption of MoMo in general, as opposed to cash? (fig.)
• Network effects – using MoMo with suppliers the strongest predictor
• Business size – attractiveness for clients
• IT-sophistication – internet, bank account, MoMo knowledge
• What about discriminants between MoMo pay and personal accounts?
• Demographics – female, younger, and less educated taxpayers use more
personal accounts
• Business - less sophisticated equipped taxpayers, withou bank account, a
tax accountant, or books of records, are much more likely to use their
personal account
• Knowledge of MoMo in general explains MoMo Pay usage
• Previous compliance relates with MoMo Pay

13. • Fees on MoMo Pay can
hamper usage – and affect
standard MoMo as well
• FGDs confirm this pattern –
merchants are aware and
influenced by fees
• Ad-hoc negotiating with
customers

14. • What are the impacts on tax perceptions?
• No impacts on fairness, transparency
and tax morale
• Strong impact on fiscal exchange:
using MoMo Pay deteriorates that, as
opposed to personal account
• Using personal accounts improves
perceived ease of compliance
• FGD – technical issues with MoMo Pay

15. • What are the impacts on tax perceptions?
• No impacts on fairness, transparency
and tax morale
• Strong impact on fiscal exchange:
using MoMo Pay deteriorates that, as
opposed to personal account
• Using personal accounts improves
perceived ease of compliance
• FGD – technical issues with MoMo Pay
• What about behaviours?
• short-lived positive impact on turnover,
VAT on taxable sales and VAT on
inputs…
• …but VAT due does not change
• VAT payment behaviour also largely
unaffected
• Effect largely driven by trading sector
and EBM users
• Hinting at strategic behavioral
responses..
• ..and weak perceptions around usability
of DMP data from RRA (18%)

16. Policy implications

17. 1. Better understand what shapes the adoption
decision of such tools
• targeted policies incentivising the adoption of DMP
are needed – focusing on less equipped and
marginalised taxpayers
2. Monitor behavioural filing responses of users
• Sectors other than trade, EBM non-users,
previously audited taxpayers do not respond to
DMP adoption
3. Get access to DMP data
• Public-private collaboration - regulation
4. Fully unlock the potential of DMP data
• Reorient skills and resources, boost IT systems to
that end

18. PARTNERS
Thank you!
Fabrizio Santoro: f.santoro@ids.ac.uk

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