Digital Financial Services and Digital IDs: What Potential do They Have for Better Taxation in Africa?

Abstract

New digital technologies are now being widely used in Africa and lower-income countries (LICs). This has had an impact on tax administration, which has been increasingly digitised. Specifically Digital Financial Services (DFS) and digital IDs can improve tax administration. They have the potential to identify taxpayers more easily, communicate with them better, enforce and monitor compliance, and reduce compliance costs. While the potential is clear, existing literature indicates some of the barriers. Take-up of digital technology is still low due to barriers. Also, when taking up the technology, taxpayers often tend to adopt various measures to minimise tax payments. Within tax administrations there are challenges to accessibility and use of quality data. Mistakes can be made when launching digitisation, and there are regulatory and political barriers for effective use of digital technology. Given this context, this paper summarises key questions that are relevant for research and policy development to make more effective use of digital technology in tax administration in Africa and LICs.