Summary measures of VAT compliance rates are valuable for identifying problem areas in
VAT implementation. They are also essential for meaningful cross-country and cross-time
comparisons of VAT compliance. We present a comprehensive and general framework for
calculating VAT compliance rates at both the economy-wide and detailed sectoral levels.
Unlike existing measures of VAT compliance, our framework isolates a compliance measure
from the effects on VAT receipts of detailed features of VAT systems as actually
implemented by tax authorities. These features include multiple VAT rates, exemptions,
registration rates, refund limitations, informal activity, taxation of domestic non-residents,
and undeclared imports. We implement our comprehensive VAT compliance measure for
Vietnam, a country with a complex VAT system. Our estimate of Vietnam’s VAT
compliance rate is about eleven percentage points higher than that calculated by the most
popular measure of compliance, collection efficiency (CE). Our method facilitates
decomposition of the difference between CE and our VAT compliance measure into the
individual contributions of statutory and structural features of Vietnam’s VAT regime.