Mongolia's Tax Collectors are the Real Winner in National Lotto

(Bloomberg) -- Mongolia’s effort to get its citizens to pay taxes by enrolling them in a lottery is delivering a big payout -- for the government.

The north Asian country between Russia and China has expanded its tax base by almost half since 2016, according to government statistics, partly by printing a lottery ticket on every retail receipt when the 10 percent value-added tax is paid. The gimmick has consumers insisting they pay the tax at the register so that they have a chance at winning a jackpot.

Mongolia has struggled to crack down on the so-called shadow economy -- transactions made when retailers cut costs by failing to report sales to the tax office. Informal markets such as the Narantuul black market in Ulaanbaatar are filled with vendors selling everything from blenders to animal skins -- much of it off-the-books. That had Mongolia’s tax authorities looking for innovative ways to grow its tax base.

Every receipt that comes from a purchase when VAT is paid can enter consumers into a lottery that pays out prizes from as little as 50,000 tugrik ($18.99) to jackpots that can equal thousands of dollars. In 2017, one woman won 500 million tugrik, or 500 times the average monthly household income, according to local media reports.

Last year, Ulaanbaatar paid out 5.05 billion tugrik in prizes to 119,254 citizens, according to the government website for the Information Technology Center of Custom, Taxation and Finance.

The National Statistics Office in a December report said a 32.7 percent expansion in VAT over the previous year was a main driver for tax revenue growth.

Shadow economies are tricky to pin down and estimates vary, but the IMF reckons Mongolia’s gray economy was as high as 15.9 percent of GDP in 2015.

To play, consumers download a smartphone app to scan bar codes printed on receipts. Tax payers get the added bonus of a 2 percent tax refund the following year from all the receipts they’ve scanned.

While Mongolia isn’t the first to experiment with such a program, with governments in Europe trying similar ones, this lotto has widened the spotlight on the informal retail business in the country.

To contact the reporter on this story: Terrence Edwards in Ulaanbaatar at tedwards100@bloomberg.net

To contact the editors responsible for this story: Fion Li at fli59@bloomberg.net, Jeffrey Black, James Mayger

©2018 Bloomberg L.P.