## Creating Value for Taxpayers

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**Canonical URL:** [Creating Value for Taxpayers](https://www.imf.org/-/media/files/publications/fandd/article/2024/09/chandra.pdf)

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### The fiscal challenge in developing economies
- Low-income developing countries need $3 trillion annually through 2030 to finance development goals and the climate transition.
- Global debt is projected to reach 100 percent of GDP before the end of this decade.
- Developing countries have an untapped tax potential of 8–9 percent of GDP.
- A large share of the population works in difficult-to-tax activities (small-holder farming, informal service providers) and uses largely cash-based transactions, making earnings difficult to track.
- Current revenue structures in many poorer countries rely mainly on taxes on goods and services, placing a heavier burden on the poor.
- Enforcement is often weak for the rich and punitive for the working class and the poor.

### Proposed approach: build trust and deliver value
- Core premise: how governments drive increases in tax collection (the process) is integral to how much tax they can collect (the outcome).
- Shift from enforcement-heavy reforms to a “value-first” approach that strengthens the social contract and encourages formalization by delivering social and economic value to taxpayers.
- Reference framework: World Bank report “Innovations in Tax Compliance: Building Trust, Navigating Politics, and Tailoring Reform” (supported by Bill and Melinda Gates Foundation) advocates augmenting enforcement with efforts to build trust by generating social value.

### Digital public infrastructure as an enabler (India’s experience)
- Digital public infrastructure = interoperable, open-access, reusable digital building blocks combined into a network of systems; akin to roads for digital transactions; includes strong policy frameworks and private-sector incentives; emphasizes data security, privacy, and consent.
- Three recommended steps to broaden the tax base and increase revenue collection:
  - Introduce digitally verifiable assets and credentials to reduce incentives to operate outside the formal economy.
    - Example: Aadhaar provides unique and verifiable digital identification numbers, enabling bank account access and reducing public spending by making social benefit payments seamless.
    - Examples of payment systems: Brazil’s Pix, Thailand’s PromptPay, India’s Unified Payments Interface.
    - Digitally signed documents and certificates make licenses and permits more straightforward via independent verifiability.
  - Align incentives for formalization so that joining the formal sector generates value for individuals and businesses.
    - Digital payment footprints and verifiable business credentials reduce the cost of business verification and improve access to formal credit.
    - The increased volume of payment records will lead to more transparent tax collection—but this should be a secondary aim to delivering value.
  - Generate value for taxpayers through the tax system to reward compliance.
    - Give data back to taxpayers in a format they trust and can reuse to access services.
      - In India, compliant taxpayers receive digitally signed (tamper-proof) business IDs usable as digital know-your-customer credentials.
      - Public verification mechanisms exist to check core business registration facts associated with a goods and services tax (GST) ID number.
    - Create supply-chain incentives for filing taxes.
      - India’s GST offers an income tax credit discount of up to 20 percent if businesses purchase from suppliers also registered and paying tax; the discount is shared as a credit toward the next tax payment.
    - Allow private ecosystem participation via APIs.
      - Opening API access in India enabled more than 55 licensed third-party platforms to be used to file taxes.

### Trust and broader institutional reforms
- Trust in government and government effectiveness have a reciprocal relationship: trust increases compliance and enables reforms; strong institutions and public-interest policies increase trust.
- Digital platforms contribute to trust by creating inclusive transaction platforms and empowering users with more control over data.
- Good digital infrastructure introduces tamper-proof components for identity, payments, and security—reducing explicit and implicit costs for citizens and businesses when interacting with government.
- Trust-building also requires reliable system functioning, swift and transparent dispute resolution, and sustained progress in policy and institutional frameworks beyond technology alone.
- “Our approach is based on strengthening the social contract and encouraging individuals and businesses to formalize their economic activities.”

### Outcomes observed in India
- Revenue collection via the goods and services tax has grown by more than 50 basis points of GDP since 2018, showing a marked increase over projected collections under the previous tax regime.
- Electronic return and refund processing times for taxpayers have fallen significantly (see Chart 2 in source).
- The tax base has broadened, with a marked and sustained rise in noncorporate taxpayers, including small businesses and individuals (see Chart 3 in source).
- A crucial element of India’s success is robust security and privacy controls ensuring confidential and ethical use of taxpayer data.
- Improvements in revenue collection cannot be attributed to technology alone; governance and policy reforms—such as the Goods and Services Tax Network as a unified collection mechanism—were critical.

### Policy implications and summary
- Sustainable increases in revenue mobilization occur when systems and processes provide value to people and businesses; tax collection increases gradually as a derivative benefit.
- Moving from an enforcement-of-collection lens to a value-first lens can drive lasting increases in revenue collection and encourage a more trusted social contract between individuals and government.
- As digital transactions become integral to business and life, evasion becomes more difficult and compliance improves.

*kamya chandra is chief strategy officer for the global Centre for Digital Public Infrastructure; tanushka vaid is the co-lead for Asia; pramod varma is the former chief architect of Aadhaar and India Stack. Kalpana Kochhar and Sanjay Jain of the Bill and Melinda Gates Foundation contributed to this article.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/09/chandra.pdf_