Using Administrative Data to Assess the Impact of the Pandemic in Low-Income Countries: An Application with VAT Data in Rwanda

Abstract

This paper uses administrative data from Value Added Tax (VAT) returns to provide insights on the impact of the COVID-19 pandemic in Rwanda. We show that the lockdown in Rwanda had a severe impact on the domestic economy, despite relatively low case numbers. However, the economy quickly rebounded after restrictions were lifted, with overall sales losses amounting to 5 per cent of GDP. Although in absolute terms, these losses are concentrated amongst the largest firms, in proportional terms, small firms have been worse affected. We also show that firms providing accommodation, food and transport services, as well as those based in the capital, have been particularly affected by the crisis. Overall, the decline in economic activity translates to a 5.1 per cent loss in VAT revenue for the government. Our results offer policy-makers evidence on the real impact of the crisis, both in aggregate terms and disaggregated by firm size, sector, and location. In a literature that has largely focused on higher-income countries, these results complement projections to inform appropriate policy responses in the specific context of low-income countries.

The Tax Side of the Pandemic: Compliance Shifts and Funding for Recovery in Rwanda

“…After an initial drop of 85 per cent compared to the baseline, average sales rebounded to about 43 per cent of pre-crisis levels, and then continued to risebut only to 53 per cent of the precrisis level by February 2021. These large dropslarger than the overall figures found in other studiesare consistent with the finding that small firms, which are the focus of our survey, have been hit more than larger ones by the pandemic (Mascagni and Lees 2021). However, once we take average sales conditional on being operational, the drop is much less dramatic, as expected.…”

“…A recent analysis of the impact of the pandemic in Rwanda, based on data from VAT declarations, shows that economic activity contracted by 10 per cent in 2020, with the largest drop happening in correspondence with the lockdown imposed around March and April 2020 (Mascagni and Lees 2021). Our survey data, focussing particularly on small and medium firms, complement those results and confirm the severe impact of the crisis on Rwandan firms.…”

“…Our results complement the scant but increasing literature on revenue lossesestimated or actualassociated with the COVID-19 pandemic in low-income countries (Arndt et al 2020;Bachas et al 2020;Mascagni and Lees 2021). These studies show that the pandemic has had a large revenue impact.…”

“…Even more limited is our knowledge of the 'tax side' of the pandemic. Most of the evidence on tax focuses on estimating or measuring revenue losses resulting from the crisis (Arndt, Davies, Gabriel, Harris, Makrelov, Modise, Robinson, Simbanegavi, van Seventer and Anderson 2020;Bachas, Brockmeyer and Semelet, 2020;Mascagni and Lees 2021). However, many other questions remain almost entirely unanswered.…”

“…For example, Arndt et al (2020) estimate a 32 per cent drop across all tax types in South Africa, while Bachas et al (2020) predict that tax revenue remitted by corporations in ten low and middle-income countries would drop by 1.5 per cent or 2.5 per cent of GDP under a three-month or five-month shock scenario. Estimates for Rwanda predict a 25 per cent drop in corporate income tax revenue in a three-month lockdown scenario (Lees, Mascagni, and Santoro 2020), while real-time VAT data show a contraction in this tax type of 5.3 per cent in the first three quarters of 2020 (Mascagni and Lees 2021). Our paper complements these findings by showing that, while revenue has been hit hard, the pandemic might have had positive effects on taxpayers' perceptions about the tax systemand its fairness in particular.…”