Strategic or Confused Firms? Evidence from "Missing" Transactions in Uganda

Are firms sophisticated maximizers, or do they consistently make errors? Using transaction-level data from Ugandan value-added tax (VAT) returns, we show that sellers and buyers report different amounts 79% of the time, despite invoices being easily cross-checked. We estimate that 25% of firms are disadvantageous misreporters—they systematically misreport own sales and purchases such that their tax liability increases—while 75% are advantageous misreporters. Many firms—especially disadvantageous misreporters—fail to report imported inputs they themselves reported at Customs, increasing their VAT liability. On net, unilateral VAT misreporting cost Uganda about US$384 million in foregone 2013-2016 tax revenue