#19 The Power of Incentives: How Uzbekistan is Increasing Tax Revenue
When you make any purchase in Uzbekistan, you get a receipt with a QR code at the bottom. If you scan the QR code and submit the receipt, you will get a 1% cashback. But unlike traditional cashbacks which are usually provided by banks or credit cards, it comes from Uzbekistan’s tax committee. It’s part of an initiative designed to push businesses to pay taxes on all of their revenue.
Collecting taxes is a problem in Central Asia. A lot of businesses keep two sets of bookkeeping records. One set of records show the real revenue while the second only shows a portion of all transactions. Businesses then file taxes based on the second set of records. One way businesses hide a chunk of their transactions is by not printing out receipts and underreporting revenue when filing taxes.
As a solution, the tax committee decided to incentivize consumers to earn cashbacks when they submit receipts. The incentive pushes consumers to demand receipts from businesses upon making a purchase. If the business doesn't give out a receipt, consumers can notify the tax committee and receive a monetary reward. Businesses, on the other hand, receive significant fines if they get reported. The whole initiative forces businesses to accurately track all transactions and submit accurate taxes.
The program rolled out in 2022 and in the first year 1.7 million people submitted receipts and received $70+ million in cashback. With this initiative Uzbekistan is making big strides in helping stop businesses from cooking the books and increasing its tax revenue.
I learned this insight from my recent trip to Uzbekistan.
I'm wondering from what sources the tax authorities pay cashback to people? Is it some sort of budgetary expenditure? Another curious thing is the structure of getting those cashbacks. Do people have some accounts with the Tax committee, where the tax authority accrues cashbacks to consumers?