Comprehensive Tax Audits on Firms in Uganda

The net revenue raised is calculated as the sum of (1) increased tax revenue due to tax corrections issued as a result of the audit (~ +$29,000), (2) reduced VAT liability reported over the first five months after the audit (~ -$31,000), and (3) reduced CIT liability reported for the year after the audit (~ -$5,400). The reduction in reported VAT and CIT liability results from a combination of firm exit, movement to the informal sector, and reduced sales by remaining firms.

The net revenue raised is then: $29,000 – $31,000 – $5,400 = -$7,400 per marginal comprehensive audit. This is the paper’s conservative case: it assumes the URA eventually collects the full correction amount, that conducting the audit is costless, and that the behavioral effects last only as long as the observation window. If instead the assumptions are that the URA collects 60% of corrections (as its audit reports show) and the VAT effect persists for a full year rather than five months, the net cost is -$62,400 per marginal audit. Neither figure includes the direct cost to the URA of conducting the audit.

Because firms’ willingness to pay to avoid a comprehensive audit is positive while the net revenue effect is negative, the MVPF for conducting a more intensive audit on the marginal firm is negative (Boning et al., 2025). In other words, it provides no benefit on average.