VAT Cashback as an Element of Motivation for Taxpayers to Demand Fiscal Receipts

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VAT Cashback Concept

One of the key challenges in using online electronic cash registers (OECRs) is controlling the issuance of fiscal receipts (also called simplified tax invoices). It is important to ensure that every item sold is reflected in the sales receipt and that each receipt is passed on to the buyer. To address this issue, it is necessary to develop a system of incentives for buyers to demand their receipts. Possible incentive tools include special tax deductions, exchanging receipts for participation in a state lottery, receiving standard VAT cashback, and others (see Figure 1).

Figure 1. Consumer Motivation Tools to Demand Fiscal Receipts from Retailers.

VAT cashback refers to the return to the buyer of a portion of the VAT paid for the goods. This mechanism can effectively increase control over the issuance of receipts and improve tax discipline among the population. It is important to emphasize that VAT cashback is provided only upon presentation of a receipt, which encourages buyers to demand receipts from sellers. In addition, VAT cashback can be paid in several ways: in the form of bonuses to a loyalty card, to a debit or credit card in non-cash form, or in cash.

One notable example of the implementation of VAT cashback is the Tax-free shopping system for international tourism. It allows tourists to return part of the VAT paid for purchases in foreign stores. When buying at a store participating in the Tax-free shopping program, the tourist is issued a special receipt and a form to fill out.

For reimbursement of VAT under the Tax-free system, certain conditions must be fulfilled by the buyer. Here are the main ones:

1. Buyer Status: The buyer must be a foreign citizen not residing in the country where the purchase is made.
2. Minimum Purchase Amount: There is a minimum threshold for the purchase amount that must be reached to have the right to a VAT refund. This threshold varies from country to country.
3. Goods Must Be Intended for Export: The goods must be exported from the country by the buyer within a limited time, which also depends on the legislation of the country. Usually, this time is from three months to a year.
4. Paperwork. When making a purchase, it is necessary to obtain a special Tax-free receipt or other documents confirming the right to a VAT refund. These documents must be certified by customs when leaving the country.
5. Refund Procedure: After approval of all necessary documents by customs, the buyer can receive the VAT refund. The refund can be made in several ways: in cash at refund points, by transfer to a bank card, or through other payment systems.

The Tax-free system operates in many countries: Australia, Austria, Azerbaijan, Argentina, Armenia, Belgium, Bulgaria, Hungary, Vietnam, Germany, Guernsey, Greece, Denmark, Israel, Indonesia, Ireland, Iceland, Spain, Italy, Cyprus, China, Colombia, Korea, Latvia, Lebanon, Lithuania, Liechtenstein, Luxembourg, Macedonia, Malaysia, Morocco, Mexico, Netherlands, Norway, Poland, Portugal, Russia, Romania, Serbia, Singapore, Slovakia, Slovenia, Thailand, Taiwan, Turkey, Uzbekistan, Finland, France, Croatia, Czech Republic, Switzerland, Sweden, Estonia, South Africa, Japan.^[1]

In countries with a high share of the shadow economy in the retail trade and B2C (business-to-consumer) or C2C (consumer-to-consumer) sectors, the importance of developing incentive mechanisms for buyers is particularly high. VAT cashback is one such mechanism used to encourage buyers to demand receipts when making purchases, thereby reducing the share of informal transactions. Examples of countries using this approach include Azerbaijan, Uzbekistan, Mongolia, and Kyrgyzstan.

Republic of Azerbaijan

Since May 2020, the Ministry of Taxes of the Republic of Azerbaijan has been using a system of VAT refunds for goods purchased by individuals in retail trade or the catering sector. The exceptions are oil and gas products and some food products, which are exempt from VAT. To receive a VAT refund, the following three conditions must be met:

• The consumer must be an individual.
• The seller must be a VAT payer.
• The seller must use a new-generation cash register.

From May 2020 to March 2023, the VAT refund rate was 10% for purchases paid in cash and 15% for cashless payments. Since March 2023, the VAT refund has increased to 17.5% for cashless payments and to 5% for cash payments, applied to legal entities and individuals operating in the spheres of trade, catering, medical institutions, and private medical practice. In the hotel business, VAT cashback reaches 30% for cashless payments and 5% for cash payments.

Currently, only two banks—Kapital Bank and ABB – have the right to direct connection to the VAT refund system. Other banks connect to these two through a partner API.

To receive a VAT cashback, the consumer must follow these steps:

1. Collect receipts from payments made in retail stores and catering establishments equipped with new-generation cash registers.
2. Register on the tax service portal as a buyer. For registration, you will need to specify your FIN (passport identifier), date of birth, and cell phone number.
3. Enter the 12-digit fiscal identifier of the receipt or scan the QR code from the receipt through the bank’s application.
4. 30 days after receiving the receipt, the cashback amount will be displayed in the personal account on the portal. Then this amount can be transferred to a bank card or transferred to the specified bank details.

During the first 10 months of 2023, a total of 126.6 million manats of VAT paid for goods and services by individual consumers engaged in retail trade, public catering, and medical activities (excluding the sale of oil and gas products, automobiles, alcoholic beverages, and tobacco products) has been refunded to consumers.^[2]

Republic of Uzbekistan

Since January 1, 2022, the Tax Committee under the Cabinet of Ministers of the Republic of Uzbekistan has been paying VAT cashback for purchases made by individuals. Cashback is returned in case of remote payment through electronic payment applications of commercial banks (including mobile applications such as PAYNET, OSON, PAYME, CLICK, APEL-SIN) and through information systems of electronic commerce platforms, or “marketplaces.”

The following categories of persons can receive VAT cashback in the Republic of Uzbekistan:

• Individuals who make purchases at retail, catering, and household services facilities. If they register a receipt in the mobile application, then at the end of the month they will be returned 1% of the purchase amount. The exceptions are payments for the purchase of cars, railway and air tickets, utilities, and communication services, as well as receipts received when paying through payment system operators.
• Individuals who notify the tax authorities through a special program about violations by sellers: selling goods and providing services with the use of counterfeit markings or without markings at all, as well as about non-issuance of receipts or documents equivalent to them. For such notifications, buyers are paid a reward in the amount of 20% of the fine imposed on the violator.

The Tax Committee under the Cabinet of Ministers of the Republic of Uzbekistan has established a requirement for payment system operators to ensure the mandatory connection of their payment systems to online cash registers, and thus ensure integration into the information systems of the tax authorities.

From January 1, 2022, to May 1, 2023, the cashback amount was 1% of the purchase amount. Since May 1, 2023, the Tax Committee of the Republic of Uzbekistan has been returning 12% of the amount of paid VAT on certain types of goods for low-income individuals.^[3]

At the same time, an individual cannot receive VAT cashback:

• If the receipt was issued more than 10 calendar days ago.
• If cashback has already been returned for this receipt from the cost of purchased goods or services.
• When purchasing cars, air, and railway tickets, as well as when paying for utilities, communication services and loan payments.
• For receipts of individuals included in the dubious buyers register. The State Tax Committee maintains a register of such people. Dubious buyers are individuals who register receipts belonging to other people without their permission to receive cashback.

In the Republic of Uzbekistan, registration of receipts is conducted by scanning and registering the QR code of the receipt through the mobile application of the tax authority. User authentication in the application is conducted using a cell phone number.

Since May 2022, Uzbekistan has been implementing a procedure for paying rewards for reports of tax violations. Individuals who inform the tax authorities through the application about offenses related to the use of cash registers and payment terminals can receive a reward. The amount of the reward is 20% of the amount of the fine imposed for the violation. The reward is transferred to the applicant’s bank card.

Individuals in Uzbekistan also have the right to receive a reward in the amount of 20% of the fine imposed for:

• Violations of the rules for using online cash registers and payment terminals.
• Artificial overestimation or underestimation of prices depending on the payment method (cash/card).
• Entrepreneurial activity without state registration.
• The absence of digital marking on goods that are mandatory for it, or counterfeit marking.
• Other violations of the rules of trade and the provision of services.

Since January 10, 2024, amendments have been made to the rules for paying VAT cashback:

• The list of goods has been expanded, for the purchase of which VAT is returned to low-income citizens. Thus, flour, sugar, medicines, and medical services are added to meat, eggs, and oil.
• A tax cashback can now be received only on an amount not exceeding 60 BCU (BCU stands for the base calculation unit) per month.^[4] As of April 2024, the amount of BCU in Uzbekistan is 340,000 soms per month.^[5] Accordingly, the limit on the purchase amount for cashback is set at 20.4 million soms per month or about $1,600.

Mongolia

The EBarimt system was launched in Mongolia on January 1, 2016. Its website has become the second most visited in the country. EBarimt registers fiscal receipts to receive VAT cashback or participate in state lotteries. In accordance with paragraph 15.2.1 of the Mongolian law “On Value Added Tax,” the VAT refund can be up to 20%.^[6]

In the first 2 years of the EBarimt consumer motivation system’s operation, the prize fund amounted to almost $3 million. The number of consumers who won the lottery was 274,871 in the first 2 years alone. The consumer motivation ecosystem includes a wide range of stakeholders:

• Government institutions (tax authorities, government, treasury, etc.).
• Commercial banks.
• IT companies – suppliers of IT solutions and integration processes at the national level.
• Retailers.
• Citizens.
• Other companies and the business community.^[7]

Figure 2. EBarimt Mobile Application Screens.^[8]

Kyrgyz Republic

The Tax Service of the Ministry of Finance of the Kyrgyz Republic planned to introduce a VAT cashback system from March 2023 and return 3% of the amount of VAT paid on the purchase when scanning the receipt.^[9]

From May 10 to the end of 2023, a consumer motivation format such as the “Demand a check, get a prize!” lottery was in operation in the Republic of Kazakhstan. Prizes included microwaves, vacuum cleaners, washing machines, refrigerators, cars, and apartments.^[10] As of December 23, 2023, the total number of tickets was 18,343,018.^[11]

Digital Tax Technologies Solution for Motivating Consumers to Demand Receipts from Retailers

Digital Tax Technologies (DTT) is implementing the TRS system for B2C in tax authorities together with online cash registers in retail trade to increase tax collection, but retailers can evade taxes by simply not issuing receipts to buyers.

To motivate buyers to demand receipts from sellers using lotteries, tax deductions, and cashback, Digital Tax Technologies offers the TRS for B2C. Consumer Motivation. TRS creates and maintains incentives for the consumer to receive, check, and store fiscal receipts by increasing their value:

• A cash register prints a QR code on paper receipts.
• The buyer can scan the receipt to verify the validity of the code, and the receipt in the tax authorities’ information systems, and link it to the specific purchase.
• If the receipt contains a customer ID, for example, from the retailer’s loyalty program, the receipt is automatically saved in the fiscal data repository.
• The TRS system provides access to the receipt repository via a mobile app and software interfaces (APIs).
• If the customer allows third parties to use this data, they can provide access to the receipts through banking apps, retailer and manufacturer loyalty programs, and e-government portals.

Implementing the TRS system for B2C along with consumer motivation to demand receipts can increase tax collection in the retail segment by up to 150%. Contact DTT for more information about TRS for B2C and Consumer Motivation solution for tax authorities.

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[1] “Tax-free shopping.” Wikipedia. URL:  https://en.wikipedia.org/wiki/Tax-free_shopping.

[2] “Successful Implementation of VAT Refund Project in Azerbaijan: 126.6 million Manat Returned to Consumers.” VAT Update, November 13, 2023. URL: https://www.vatupdate.com/2023/11/13/successful-implementation-of-vat-refund-project-in-azerbaijan-126-6-million-manat-returned-to-consumers/.

[3] “В правительстве Узбекистана рассказали о возврате НДС при покупке мяса, яиц и масла гражданам с низким доходом” (“The Government of Uzbekistan Spoke About VAT Refund When Buying Meat, Eggs and Butter to Citizens with Low Income.”) Газета.uz, 24 марта 2023. URL: https://www.gazeta.uz/ru/2023/03/24/vat/.

[4] “Расширен перечень товаров, при покупке которых гражданам с низким доходом возвращают НДС” (“The List of Goods for the Purchase of Which Low-income Citizens are Entitled to VAT Refunds has been Expanded.”) Gazeta.uz, January 10, 2024. URL: https://www.gazeta.uz/ru/2024/01/10/cashback/.

[5] “Важные и актуальные цифры для жителей Узбекистана” (“Important and Relevant Figures for the Residents of Uzbekistan.”) Kun.uz, March 11, 2024. URL: https://kun.uz/ru/news/2024/03/11/vajnyye-i-aktualnyye-tsifry-dlya-jiteley-uzbekistana.

[6] “Монгол улсын хууль. Нэмэгдсэн өртгийн албан татварын тухай” (“Law of Mongolia. On Value Added Tax.”) legalinfo.mn. URL:  https://legalinfo.mn/mn/detail/11227.

[7] “VAT promotion system in Mongolia /e-receipt, e-invoice system/.” December 1, 2017. IMF. URL: https://www.imf.org/-/media/Files/News/Seminars/2017/oap-adb-seminar-in-manila-2017/Mongolia.ashx.

[8] Ebarimt. App Store. URL: https://apps.apple.com/bj/app/ebarimt/id1071510270?platform=iphone.

[9] “Кэшбэк в 3% от суммы НДС на покупку — Налоговая служба внедряет новую систему поощрения” (“3% VAT Cashback on Purchases—Tax Service Implements New Incentive System.”) Economist.kg, January 24, 2023. URL: https://economist.kg/novosti/2023/01/24/keshbek-v-3-ot-summy-nds-nalogovaya-sluzhba-vnedryaet-sistemu-pooshhreniya-pokupatelej/.

[10] “’Требуй чек — выиграй приз!’ Как прошёл первый розыгрыш лотереи от налоговой” (“’Claim a Receipt, Win a Prize!’ How the First Tax Lottery Drawing Went.”) 24.kg, July 2, 2022. URL: https://24.kg/ekonomika/238865_trebuy_chek_vyiigray_priz_kak_proshel_pervyiy_rozyigryish_loterei_otnalogovoy/.

[11] “’Требуй чек — выиграй приз!’ Стимулирующая лотерея” (“’Claim a Receipt, Win a Prize!’ Incentive Lottery.”) Salyk Receipt. URL: https://lottery.salyk.kg/.