International Tax Fun Fact: Uruguay’s Tax Computer Game

October 16, 2015

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Most Americans remember exploring the hardships of traveling across the American plains in the 19th century with the computer game Oregon Trail. In the game, students must travel to the Oregon Territories in a covered wagon while most of their game family dies of dysentery or suffers some other misfortune. Despite being the butt of many jokes, this iconic game has helped many American appreciate the difficulties of their forefathers.

Uruguay has taken a similar tacked to teaching their students about taxes. The General Directorate of Taxation (DGI), the IRS of Uruguay, in conjunction with the Council for Secondary Education (CES) designed a video game, called +Ciudadano, where students have to administer public services and collect taxes in a small town. DGI released the game in 2012 as part of a larger education initiative.

The premise of the game is that a strong storm has hit the city in which the main character lives. The storm demolished the buildings where public records where held, and the government needs to reorganize the tax-collection agency and public services. As part of the emergency situation, a group of young people have been asked to collect taxes and distribute resources.

Similar to Oregon Trail, unexpected events in the game force the students to make decisions about the allocation of resources in the community. The students face budget constraints, investment needs, and tax evasion along with the task of providing essential services.

DGI has since expanded their educational games. In a game called “Ivan vs. Evatrones,” children try to collect taxes while avoiding tax evaders. In another game, “Invincible”, children travel from community to community gathering taxes and exposing tax evaders.

DGI has a good reason for investing in projects that reduce tax evasion. Studies have shown that in 2007, 22 to 37 percent of the economy evaded Uruguay’s 22 percent Value Added Tax (VAT). This suggests that a fourth of the possible tax revenues from the VAT is likely lost due to tax evasion.

In addition, there is considerable evasion of Uruguay’s progressive wealth tax, which ranges from 0.7 to 2.75 percent.

There is another way to reduce tax evasion. High tax rates give tax payers a strong incentive to hide income and wealth. Reducing tax rates can increase compliance and stimulate economic activity.

High tax rate are not the only reason tax payers evade taxes. Poorly structured taxes can cause considerable economic damage and also create incentives to avoid paying the tax. Wealth taxes are particularly damaging to economic activity and often cause tax payers to move wealth out of the purview of tax authorities. Shifting away from taxes that have a strong impact on the economy to less damaging taxes can also increase compliance.

This was not completely lost on Uruguayan politicians. In 2007, the government enacted tax reform that reduced the corporate income tax rate by 5 percentage points, reduced the VAT rate by one percentage point, allowed businesses to deduct business income taxes paid from wealth taxes, as well as a myriad of other smaller changes.

Video games have often been used to educate the public on important issues. Budget Hero, an online video game produced by American Public Media and the Wilson Center, allowed the public to test their own budget policies during the 2011 debt ceiling crisis.

With the debates in the congress over how to fund the highway trust fund, international corporate tax reform, and tax extenders; maybe it’s time for someone to create a video game about passing tax law. World of Tax Craft could challenge players to pass needed tax reform before American infrastructure crumbles and American jobs are lost to other OECD competitors. Players will have to deal with unexpected challenges, such as unruly party members or key leaders retiring. Just as a family member was always dying of dysentery in Oregon Trail, it’s likely that tax reform in World of Tax Craft will also suffer a similar fate.

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