The challenge
Many retailers underreported sales to evade sales tax.
The case
In 2007 the state of São Paulo began giving consumers a share of the sales tax on their purchases, plus monthly lottery prizes, when they asked stores to record their tax ID on the receipt. Each request created a record the tax authority could check against the store's reported sales, and consumers could file complaints online. A study found firms' reported sales increased by at least 21 percent over four years. Firms also reported higher expenses, but tax revenue net of the rewards paid out still increased by 9.3 percent.
Why it worked
Turning millions of shoppers into informal auditors made tax evasion riskier at almost no enforcement cost. Lottery prizes kept people participating.
Sources
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