Get Rich by Paying Taxes

In some respects, “Vas o No Vas” is a typical Mexican TV game show.

An energetic host whips the audience into a frenzy of excitement. There are curvy female sidekicks, an irritating clown and plenty of suspense as contestants vie for a big cash jackpot.

What makes the show unique is its purpose: to encourage Mexicans to pay taxes.

Faced with rampant tax evasion fueled by off-the-books cash transactions, the Mexican government is sponsoring the fiscal equivalent of “Let’s Make a Deal.” It’s offering consumers the chance to come on down and win fabulous prizes in exchange for using their bank cards to make routine purchases.

Think IRS meets Monty Hall.

Since the television program began in late 2004, the Mexican government has paid out more than $1 million in cash prizes to winning contestants on the daily game show. It also has given away 2,600 new cars and $1.7 million in cash in separate drawings. Collectively, these efforts are known as Boletazo, which means “the Big Ticket.”

The contests are open only to users of debit and credit cards, whose electronic purchases are traceable by tax authorities and provide a quick injection of sales tax revenue to the treasury. Card holders are entered in the random drawings for cash and cars simply by using their cards. Each purchase of about $4.70 counts as one entry, so the more people spend, the better their chances of winning. Would-be game-show contestants must fill out an application and hold on to official receipts proving that they made an electronic purchase in the event they’re selected to appear on the show.

Although Boletazo hasn’t sparked a spending binge or any dramatic increase in tax revenue, it has developed an enthusiastic following for the show, whose literal translation is “Go or No Go.” The show’s creators refer to it as “Deal or No Deal” in English. The program, which airs on the Televisa network here, carries a top prize of 5 million pesos, or nearly $472,000, the richest ever for a Mexican game show.

A contestant is presented with 26 sealed boxes, each containing a check ranging from 9 cents to el gordo, the fat one. The contestant begins opening the boxes one by one, thus eliminating them from play. The hope is to get rid of the lowest-value boxes first, thus increasing the odds of ending up with one of the big-money prizes. The house weighs in periodically, tempting the player with a cash buyout to walk away from the chance at striking it really rich. The more high-value boxes left in the game, the bigger the offer. The game ends when a player takes the buyout or plays through to the last box.

A recent episode of the program featured Nety, a mother of three from the northeastern Mexican state of Nuevo Leon. After four nerve-racking rounds of play, she took the buyout instead of risking it all for the big enchilada.

“I’m satisfied,” said the contestant, who reasoned that $17,000 in hand was better than walking away with nothing.

Pragmatism is driving tax collectors in Mexico and other emerging economies. Desperate for revenue to fund social programs but lacking the resources to scare tax cheats into compliance with mass audits and jail time, developing countries are using contests and other gimmicks to coax scofflaws into paying up.

Latin American nations including Chile and Costa Rica have staged so-called fiscal lotteries in which people who send in official sales documents to the government are eligible for a fat cash drawing. The idea is to encourage citizens to demand store receipts proving they have paid their sales taxes and to get them to blow the whistle on merchants who don’t provide them.

Mexican officials say the inspiration for their program came from South Korea. That Asian nation mounted an aggressive effort in the late 1990s to convert the public from cash to credit as a way to boost domestic spending and tax revenue.

Unlike many cash transactions, credit card purchases leave a paper trail that helps authorities track down those who aren’t paying sales taxes and who may be understating their incomes. The South Korean government offered incentives to citizens to fill their wallets with plastic. Those included income tax deductions for large purchases and a national lottery offering credit card users a shot at big prizes.

Some would argue that the program worked too well. South Koreans’ spending binge led to the so-called credit card crisis of 2003, when card delinquencies soared and banks swallowed billions of dollars in losses.

Still, through that effort and others, South Korea has succeeded in luring a good chunk of commerce into the mainstream economy.

From 1991 to 2001, the country increased its total tax revenue as a percentage of gross domestic product by 8.5 percentage points to 27.2%, according to the Organization for Economic Cooperation and Development. That stunning increase put South Korea in the same league as the U.S. and Japan when it comes to tax collection.

In contrast, Mexico, the world’s 10th-largest economy, collects revenue about as effectively as Sri Lanka and Kyrgyzstan, according to World Bank data.

Experts attribute Mexico’s weak tax collection to a host of factors, including entrenched government corruption that has sapped the public’s willingness to pay and a devilishly complex tax code that has long burdened the small middle class and favored the rich.

But one of the most alarming trends for tax authorities is the nation’s exploding underground economy.

About half of Mexico’s workforce is estimated to be toiling off the books for cash, including millions of street vendors who hawk such diverse products as apparel and pirated Viagra.

The Mexican government collects little in employment, business, income, sales or other taxes from this sector. While economic rivals such as China are investing billions in ports, superhighways and higher education, Mexico is struggling to provide some basic services.

Efforts to overhaul the tax system have gone nowhere amid vicious political infighting. Thus, for Mexico, the prospect of boosting tax revenue simply by getting more people to use credit cards to make purchases in the legitimate economy is an attractive stopgap.

“It’s a way to increase voluntary compliance without spending a lot on auditors and other expensive enforcement,” said Jorge Martinez-Vasquez, an economics professor at Georgia State University who is an expert on the Mexican tax system.

Converting Mexico to e-commerce won’t be easy. To be sure, consumer credit has expanded rapidly in recent years. Credit card transactions were up nearly 40% from 2001 to 2004, according to the country’s central bank.

Yet Mexico’s economy still runs largely on efectivo, or cash. Half of all Mexicans are poor, and few have bank accounts. Less than 15% of the population have a charge card. In addition, about 95% of Mexico’s businesses aren’t wired to accept credit and debit cards.

To stimulate card use, Mexico has launched an effort that it projects will nearly triple the number of establishments that accept electronic payments over the next five years to about 475,000. The government is providing tax breaks to 15 banks that will spend about $150 million installing the machines free of charge in small businesses nationwide.

That’s benefiting equipment suppliers such as San Jose-based VeriFone Holdings Inc., one of the world’s largest providers of electronic payment systems. The company already has landed two contracts to install 29,000 machines in Mexico.

William Nichols, vice president of emerging markets for VeriFone, said the Mexican push was one of the most organized and aggressive that he had seen. And it’s one that is attracting the attention of other revenue-hungry nations.

“We have had bankers from China, Brazil and India asking for us to take them to Mexico,” he said. “There is a lot of interest.”

Mexican officials say it could take until 2008 at the soonest to see a fiscal payoff from programs such as Boletazo.

Still, tax experts say Mexico will have to do a lot more than sponsor a game show, give away shiny Volkswagen Jettas and put credit card terminals in stores to solve its fiscal mess. What’s needed, they say, is a system that is broad, simple and fair.

Mexico also needs better enforcement. Without royalty and pump taxes from Pemex, the state-owned oil monopoly that funds nearly one-third of federal spending, the nation’s tax take would fall to single digits as a percentage of GDP. That puts Mexico’s tax collectors among the most ineffective on the planet.

One place they cannot hunt for revenue is from winning contestants on “Vas o No Vas.” For reasons no one in Mexico’s revenue service was willing to explain, the cash prizes awarded on the show are tax free.

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Hurting global competitiveness?

Mexico ranks last in tax collection among the 30 nations that make up the Organization for Economic Cooperation and Development.

Total 2002 tax revenue as a percentage of gross domestic product among selected OECD nations

Sweden 50.2%

Denmark 48.9

Czech Republic 39.3

Poland 32.6

Australia 31.5

Turkey 31.1

United States 26.4

South Korea 24.4

Mexico 18.1

OECD average 36.3

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Source: Organization for Economic Cooperation and Development