## Appendix 1. Case Studies ## Source details **Canonical URL:** [Appendix 1. Case Studies](https://www.imf.org/-/media/files/publications/imf-notes/2023/english/insea2023008.pdf) ## Other formats - [Markdown version](/-/media/files/publications/imf-notes/2023/english/insea2023008.pdf.md) - [Structured JSON version](/-/media/files/publications/imf-notes/2023/english/insea2023008.pdf.json) --- ### Overview - Digital technologies and services assessed: e-registration, e-filing, e-payment, e-invoicing, electronic fiscal devices (EFDs), and related data analytics. - Cross-country and microeconomic evidence indicates digital tools can enhance tax collection, but effects vary by specific technology and context. - Realization of revenue gains is heavily contingent on accompanying policy, legislative, and administrative reforms, and the availability of adequate digital connectivity and capable tax administration staff. ### Digital adoption context and baseline statistics - Share of VAT and CIT filings completed online across the globe in 2019: 95 percent. - Share of PIT filings completed online across the globe in 2019: 85 percent. - VAT filed online in LIDCs in 2019: 47.2 percent. - VAT filed online in AEs in 2019: 92.7 percent. - E-invoicing is more commonly used in EMEs; EFDs are used more uniformly across income groups. - LIDCs have more to gain from adopting technologies that enhance the effective use of information collected (for example, e-filing, e-invoices, and EFDs) if skilled analysts and appropriate tools (database querying, machine learning) are available. ### E-Filing — Tajikistan (selected findings) - Firms spend 33 hours each month on filing taxes (including about three hours for visiting a tax office). - E-filing introduced in 2012; adoption initially progressed very slowly due to lack of awareness, trust, information security concerns, registration difficulties, and lack of access to computers and internet. - 2014 randomized intervention (intensive training, demonstration, registration support) produced: - Decrease in cost of compliance by 40 percent. - Increase in net tax liability for taxpayers with a higher risk of evasion. - Aggregate impact ambiguous: no meaningful increase in overall tax payment because tax liability decreased for low-risk taxpayers while increasing for high-risk taxpayers. - Mechanism: e-filing removes in-person interactions, reducing opportunities for bribes and reallocating tax agents’ enforcement across taxpayer segments. ### E-Filing — Eswatini (selected findings) - Informal sector contributed approximately 40 percent of the national income between 2005 and 2015. - E-tax introduced in 2014; phased rollout with mandatory e-filing for all taxpayers in 2020 and paper-based filing discontinued. - Implementation supports: registration encouragement, navigation assistance, internet kiosks at tax centers. - Observed uptake: Only 41 percent of registered taxpayers started to use the e-tax system. - Impacts: - Low take-up of e-filing of CIT, especially by smaller firms before mandatory adoption. - Mandatory adoption promoted on-time payment and increased actual tax payment (fewer tax arrears). - Impact larger for CIT than PIT. - Estimated taxable income increases: PIT increases by 42 percent; CIT increases by 80 percent. - Back-of-the-envelope calculation (assuming full adoption) indicates tax-to-GDP ratio expected to increase by 4 percent of GDP. - Footnote example: As of FY2019/20, PIT and CIT revenues were 5.3 and 2.6 percent of GDP in Eswatini; total revenue impact calculated as 5.3 x 0.42 + 2.6 x 0.8 = 4.3. ### E-invoicing — Peru (selected findings) - E-invoicing available since early 2000s (voluntary); mandatory shift introduced in 2013 with gradual rollout. - Measured firm-level impacts: - Firms declared higher sales by 6.6 percent. - Firms declared higher deductions on the VAT paid for inputs by 4.5 percent. - Resulted in higher net VAT liability by 7.2 percent. - Net VAT liability increase larger among small firms by 9.7percent. - Transportation sector net VAT liability increased by 16 percent. - Revenue translation: In an economy with tax-to-GDP ratio 14.5 percent of GDP, a 7.2 percent increase in tax revenue translates to about 1 percent of GDP increase in tax revenue. - Caveat: firms can draw down existing stock of VAT credits to pay additional taxes rather than pay in cash. - Spillovers: adoption by a company spurs trading partners to voluntarily embrace e-invoicing. ### Electronic Fiscal Devices (EFDs) — Ethiopia (selected findings) - Tax revenue-to-GDP ratio fell from 11.8 percent in 2002 to 8.6 percent in 2009. - Electronic billing machines introduced in 2008; staggered mandate starting 2009 fiscal year. - Data transmitted by machines not directly used to pre-populate tax returns but used for ad hoc risk assessments or audits; authorities do not always use data effectively. - Measured impacts: - Decreased discrepancies between sales declared in VAT vs profit tax declarations and between input costs declared across declarations. - Impact on net VAT revenue: 47 percent. - Impact on income tax: 12 percent. - When sample restricted to VAT registered firms, income tax impact increases to 36 percent. - Mechanism: enhanced compliance by previously non-compliant firms. - In an economy with tax-to-GDP ratio 7.3 percent, a 12 percent increase in tax revenue translates to about 0.88 percent of GDP increase in tax revenue. - Caveats: - EFDs brought significant compliance costs for small and medium taxpayers. - Sustainability depends on continuous investment in maintenance and data analytics and on effective use of data by tax administration. ### E-registration — Sierra Leone and Senegal (selected findings) - E-registration is particularly effective for property tax revenue mobilization. - Preliminary results show significant revenue mobilization from e-registration for property taxation. - Impact on other taxes remains unknown. ### Tax revenue impacts and heterogeneity (cross-country and calibrated country estimates) - Microcountry causal studies generally find positive impacts of digital services on compliance and reported tax bases, but external validity is limited. - Mandatory e-invoicing and EFDs can boost revenue by almost 1 percent of GDP in some settings. - Effects of e-filing can be large in reported taxable income (example: up to 4 percent of GDP in Eswatini) but may not automatically increase tax revenue without sufficient enforcement capacity. - Effects heterogeneous across tax types: stronger impacts for VAT than for CIT in some cases (EFD evidence). - Calibrated country case estimates (exact figures preserved): - Santoro, Amine, and Magongo (2022) — e-filing, Eswatini: - 40% for PIT; 80% for CIT - Impact on Tax Revenue (in percent of GDP): 4.00 (impact is on taxable income) - Bellon and others (2022) — e-invoice, Peru: - Estimated coefficient (on taxable income): 8.2% - Impact on Tax Revenue (in percent of GDP): 0.93 - Fan and others (2020) — e-invoice, China: - Estimated coefficient (on taxable income): 12.9% - Impact on Tax Revenue (in percent of GDP): 1.56 - Mascagni, Mengistu, and Woldeyes (2021) — EFDs, Ethiopia: - Estimated coefficient (on taxable income): 12.0% - Impact on Tax Revenue (in percent of GDP): 0.88 - Eissa and Zeitlin (2014) — EFDs, Rwanda: - Estimated coefficient (on taxable income): 6.3% - Impact on Tax Revenue (in percent of GDP): 0.68 ### Key assumption in the back-of-the-envelope calculation - The estimate assumes a 100 percent e-filing adoption rate; however, empirical evidence shows that even after mandating the e-tax system for all taxpayers, only 41 percent of them filed their taxes through the e-tax system. ### Select regression coefficients and statistics (preserved exact values) - ISORA: Online filing of PIT/CIT/VAT (principal component index): 0.0118 *** - Standard error (0.0039) - TADAT: Use of electronic filing facilities: 0.0331 ** - Standard error (0.0165) - TADAT: Use of electronic payment methods: 0.0333 ** - Standard error (0.0167) - TADAT: Use of large-scale data-matching systems to detect inaccurate reporting: 0.0562 ** - Standard error (0.0238) - Table 2 coefficients (Mandatory measures on Nontrade Tax/GDP): - Mandatory online filing: CIT: 0.0537 ** - (0.0230) - Mandatory online filing: PIT: 0.0417 ** - (0.0166) - Mandatory online filing: VAT: 0.0510 ** - (0.0248) - Mandatory online payment: CIT: 0.0408 ** - (0.0186) - Mandatory online payment: PIT: 0.0408 ** - (0.0186) - Mandatory online payment: VAT: 0.0448 ** - (0.0191) - Online registration: 0.0234 (0.0181) - Electronic invoice in place: 0.0056 (0.0096) - Electronic fiscal device in place: 0.0076 (0.0117) - Table sample sizes and panels: - Observations: 763; 574; 574; 564; 676; 459; 459; 449 (varies by specification) - Number of countries: 96; 64; 64; 63; 88; 54; 54; 53 (varies by specification) - Observations (Table 2): 521 (for each specification) - Number of countries (Table 2): 97 ### Enabling factors that amplify revenue yields - Complementary factors and prerequisites include: - Reliable internet connections. - Sufficient staffing and digital literacy of taxpayers. - Greater ICT expenditure by tax administrations. - Accountability and anticorruption measures. - Quality of governance (World Bank government effectiveness index used as proxy). - Tax officials' staffing, experience (length of service > 5 years), and skills (MA/graduate degree). - Enhanced Digital Accessibility Index (EDAI) as proxy for digital connectivity and access. - Heterogeneity in impact: - Adoption of online filing contributes more to domestic tax mobilization in countries with higher scores in enabling variables (EDAI, tax staffing, staff experience, staff qualifications, ICT expenditure, governance). - Figure annotations indicate heterogeneous effect point estimates including -2.5%, 3.7%, 1.7%, 4.8%, 0.6%, 5.7%, 1.1%, 3.6%, 1.6%, 3.8%, 0.7%, 2.4% across enablers (numeric axis range shown from -10% to 10%). ### Policy implications and recommendations - Mandatory adoption of key digital technologies and services amplifies revenue mobilization; mandatory e-filing and e-payment have larger impacts than voluntary adoption. - Strengthen enforcement capacity in parallel with digital adoption to prevent taxpayers from strategically choosing non-use when adoption is voluntary. - Invest in enabling factors before or alongside digital tools: - Adequate ICT infrastructure, internet access, and reliability. - Human capital: recruit and train tax officials with technical and digital skills; provide taxpayer education and training in e-filing. - ICT expenditure increases and development of data analysis capabilities to use the information digital tools generate. - Tailor technology choices to country context: - In areas with limited digital literacy, consider mobile applications, USSD, and other alternatives to online services. - Recognize that digitalization is not a silver bullet: - Revenue gains depend on complementary reforms in policy, legislation, organizational design, governance, business processes, staffing, and training. - Digital tools often deployed as part of broader modernization packages; estimated cross-country effects may reflect joint impacts. - Validate cross-country upper-bound estimates with single-country case studies to assess context-specific outcomes. *Source: Appendix 1. Case Studies, IMF Note NOTE/2023/008* ### Appendix 1. Case Studies ............................................................................................... ### Appendix 1. Case Studies ### Overview - Digital technologies and services assessed: e-registration, e-filing, e-payment, e-invoicing, electronic fiscal devices (EFDs), and related data analytics. - Cross-country and microeconomic evidence indicates digital tools can enhance tax collection, but effects vary by specific technology and context. - Realization of revenue gains is heavily contingent on accompanying policy, legislative, and administrative reforms, and the availability of adequate digital connectivity and capable tax administration staff. ### Digital adoption context and baseline statistics - Share of VAT and CIT filings completed online across the globe in 2019: 95 percent. - Share of PIT filings completed online across the globe in 2019: 85 percent. - VAT filed online in LIDCs in 2019: 47.2 percent. - VAT filed online in AEs in 2019: 92.7 percent. - E-invoicing is more commonly used in EMEs; EFDs are used more uniformly across income groups. - LIDCs have more to gain from adopting technologies that enhance the effective use of information collected (for example, e-filing, e-invoices, and EFDs) if skilled analysts and appropriate tools (database querying, machine learning) are available. ### E-Filing: Experience of Tajikistan and Eswatini - Tajikistan: - Introduction of e-filing and e-payment increases the share of on-time tax payments and reduces compliance costs. - Impact on reported net tax payment is uncertain because previously compliant businesses tended to underreport tax liability after e-filing introduction (Okunogbe and Pouliquen 2022). - Eswatini: - E-filing can lead to a significant increase in reported taxable income—up to 4 percent of GDP (Santoro, Amine, and Magongo 2022). - The impact of e-filing was higher on CIT than on PIT. - The increase in reported taxable income did not translate into more tax revenue due to lack of enforcement capacity. ### E-invoicing: Experience of Peru - Evidence from microeconomic literature shows mandatory e-invoicing can: - Eliminate unintended errors, enhance risk management capabilities, detect fraud schemes early, and lower taxpayers’ compliance costs. - When mandated (and similarly with mandatory EFDs), boost revenue by almost 1 percent of GDP (Mascagni, Mengistu, and Woldeyes 2021; Bellon and others 2022). ### Electronic Fiscal Devices (EFDs): Experience of Ethiopia - Mandatory use of EFDs increases declared revenue and reported costs, yielding an increase in net tax liability. - Improvement in tax compliance from introducing EFDs is significantly larger for VAT than for CIT. ### E-registration: Experience of Sierra Leone and Senegal - E-registration (part of digital taxpayer services alongside e-filing and e-payment) supports improved taxpayer records and contributes to compliance when integrated with other digital tools and enforcement capacity. ### Tax revenue impacts and heterogeneity - Microcountry causal studies generally find positive impacts of digital services on compliance and reported tax bases, but external validity is limited. - Mandatory e-invoicing and EFDs can boost revenue by almost 1 percent of GDP in some settings. - Effects of e-filing can be large in reported taxable income (example: up to 4 percent of GDP in Eswatini) but may not automatically increase tax revenue without sufficient enforcement capacity. - The benefits from digital tools are heterogeneous across tax types: stronger impacts for VAT than for CIT in some cases (EFD evidence). ### Preconditions for Digital Tools’ Success in Revenue Mobilization - Enabling fundamentals required to realize and sustain revenue gains: - Accompanying policy, legislative, and administrative reforms. - Adequate digital connectivity across taxpayers and administration. - Capable tax administration staff with skills in data analysis and digital tools. - Availability and use of third-party information and formalization of the economy to complement digital measures. - Investment in data-handling capabilities (database querying, machine learning) to exploit information from e-filing, e-invoices, and EFDs. *Source: Appendix 1. Case Studies, IMF Note NOTE/2023/008* ### Appendix 1 contains details of the back-of-the-envelope calculation. It is important to note that this estimate assumes ### insea2023008 - Appendix 1 contains details of the back-of-the-envelope calculation. It is important to note that this estimate assumes ### Key assumption in the back-of-the-envelope calculation - The estimate assumes a 100 percent e-filing adoption rate; however, empirical evidence shows that even after mandating the e-tax system for all taxpayers, only 41 percent of them filed their taxes through the e-tax system. ### Main empirical findings on digital adoption and revenue - Cross-country analysis finds a positive association between digital technologies and improvements in tax revenue collection. - Results consistently show that greater digital adoption in tax administration is associated with: - Larger tax revenue collection. - Reduction in the VAT compliance gap. - Increasing e-filing adoption by half could boost tax revenues by 1.6 percent of GDP. - Calibration: coefficient of TADAT e-filing score used; realistic scenario is a 0.5 increase in TADAT score, computed as 3.3 x 0.5 = 1.6 percent of GDP. - When ISORA online filing index is used, moving from the 40th to 60th percentile (index improvement of about 1.1) and using the ISORA coefficient (1.2) yields a revenue gain of 1.3 percent of GDP (1.2 x 1.1). - Mandatory implementation amplifies impact: - Impact of e-filing on revenue is larger (close to 5 percent of GDP) when e-filing is mandatory. - A realistic scenario of an improvement from no e-filing to 25 percent of all taxes being filed online yields an improvement close to 1.2 percent of GDP. - Impact differs by tax type: stronger on VAT and CIT compared with PIT. - Some digital tools (e-registration, electronic invoices, EFDs) have positive and economically significant coefficients but are not statistically significant—potentially because they are not mandatory. ### Select regression coefficients and statistics (preserved exact values) - ISORA: Online filing of PIT/CIT/VAT (principal component index): 0.0118 *** - Standard error (0.0039) - TADAT: Use of electronic filing facilities: 0.0331 ** - Standard error (0.0165) - TADAT: Use of electronic payment methods: 0.0333 ** - Standard error (0.0167) - TADAT: Use of large-scale data-matching systems to detect inaccurate reporting: 0.0562 ** - Standard error (0.0238) - Table 2 coefficients (Mandatory measures on Nontrade Tax/GDP): - Mandatory online filing: CIT: 0.0537 ** - (0.0230) - Mandatory online filing: PIT: 0.0417 ** - (0.0166) - Mandatory online filing: VAT: 0.0510 ** - (0.0248) - Mandatory online payment: CIT: 0.0408 ** - (0.0186) - Mandatory online payment: PIT: 0.0408 ** - (0.0186) - Mandatory online payment: VAT: 0.0448 ** - (0.0191) - Online registration: 0.0234 (0.0181) - Electronic invoice in place: 0.0056 (0.0096) - Electronic fiscal device in place: 0.0076 (0.0117) - Table sample sizes and panels: - Observations: 763; 574; 574; 564; 676; 459; 459; 449 (varies by specification) - Number of countries: 96; 64; 64; 63; 88; 54; 54; 53 (varies by specification) - Observations (Table 2): 521 (for each specification) - Number of countries (Table 2): 97 ### Calibrated country case estimates (exact figures) - Santoro, Amine, and Magongo (2022) — e-filing, Eswatini: - 40% for PIT; 80% for CIT - Impact on Tax Revenue (in percent of GDP): 4.00 (impact is on taxable income) - Bellon and others (2022) — e-invoice, Peru: - Estimated coefficient (on taxable income): 8.2% - Impact on Tax Revenue (in percent of GDP): 0.93 - Fan and others (2020) — e-invoice, China: - Estimated coefficient (on taxable income): 12.9% - Impact on Tax Revenue (in percent of GDP): 1.56 - Mascagni, Mengistu, and Woldeyes (2021) — EFDs, Ethiopia: - Estimated coefficient (on taxable income): 12.0% - Impact on Tax Revenue (in percent of GDP): 0.88 - Eissa and Zeitlin (2014) — EFDs, Rwanda: - Estimated coefficient (on taxable income): 6.3% - Impact on Tax Revenue (in percent of GDP): 0.68 ### Enabling factors that amplify revenue yields - Complementary factors and prerequisites for realizing revenue gains include: - Reliable internet connections. - Sufficient staffing and digital literacy of taxpayers. - Greater ICT expenditure by tax administrations. - Accountability and anticorruption measures. - Quality of governance (World Bank government effectiveness index used as proxy). - Tax officials' staffing, experience (length of service > 5 years), and skills (MA/graduate degree). - Enhanced Digital Accessibility Index (EDAI) as proxy for digital connectivity and access. - Heterogeneity in impact: - Adoption of online filing contributes more to domestic tax mobilization in countries with higher scores in enabling variables (EDAI, tax staffing, staff experience, staff qualifications, ICT expenditure, governance). - Example heterogeneous effect magnitudes (Figure 3 labels preserved visually in source): values shown range across enablers (Low vs High), with numeric axis from -10% to 10% and plotted point estimates including -2.5%, 3.7%, 1.7%, 4.8%, 0.6%, 5.7%, 1.1%, 3.6%, 1.6%, 3.8%, 0.7%, 2.4% (as presented in figure annotations). ### Policy implications and recommendations (as stated) - Mandatory adoption of key digital technologies and services amplifies revenue mobilization; mandatory e-filing and e-payment have larger impacts than voluntary adoption. - Strengthen enforcement capacity in parallel with digital adoption to prevent taxpayers from strategically choosing non-use when adoption is voluntary. - Invest in enabling factors before or alongside digital tools: - Adequate ICT infrastructure, internet access, and reliability. - Human capital: recruit and train tax officials with technical and digital skills; provide taxpayer education and training in e-filing. - ICT expenditure increases and development of data analysis capabilities to use the information digital tools generate. - Tailor technology choices to country context: - In areas with limited digital literacy, consider mobile applications, USSD, and other alternatives to online services. - Recognize that digitalization is not a silver bullet: - Revenue gains depend on complementary reforms in policy, legislation, organizational design, governance, business processes, staffing, and training. - Digital tools often deployed as part of broader modernization packages; estimated cross-country effects may reflect joint impacts. - Validate cross-country upper-bound estimates with single-country case studies to assess context-specific outcomes. *Source: insea2023008 - Appendix 1 (IMF Note content provided).* ### Appendix 1. Case Studies ### Appendix 1. Case Studies ### Overview - Mobilizing domestic revenue in LIDCs faces structural obstacles: a large informal economy, a higher share of the agriculture sector, high compliance cost, asymmetric information, and pervasive bribes (Besley and Persson 2014). - Underdeveloped financial sectors restrict availability of third-party information, reducing tax compliance. - Many LIDCs have deployed digital tools in tax administration; summarized evidence from recent microeconomic studies follows. ### E-Filing: Experience of Tajikistan - Context and barriers: - Firms spend 33 hours each month on filing taxes (including about three hours for visiting a tax office). - Frequent in-person interaction creates opportunities for soliciting bribes and decreases tax compliance. - E-filing introduced in 2012, but adoption progressed very slowly due to lack of awareness, trust, information security concerns, registration difficulties, and lack of access to computers and internet. - Randomized intervention in 2014: - Randomly selected firms received intensive training, interactive demonstration of the e-filing system, information on registration procedures, and logistical support in registering for e-filing. - Treatment effects: decrease in cost of compliance by 40 percent and an increase in net tax liability for taxpayers with a higher risk of evasion. - Aggregate impact ambiguous: no meaningful increase in overall tax payment because tax liability decreased for low-risk taxpayers while increasing for high-risk taxpayers. - Mechanism: - E-filing removes in-person interactions, reducing opportunities for bribes and reallocating tax agents' enforcement across taxpayer segments; tax agents also face revenue targets that shape behavior. ### E-Filing: Experience of Eswatini - Context: - Informal sector contributed approximately 40 percent of the national income between 2005 and 2015 (Medina and Schneider 2018). - Low tax compliance historically. - Rollout timeline: - E-tax introduced in 2014, rolled out staggeredly: large taxpayers and VAT-registered businesses required to register first; high net-worth individuals in 2018; e-filing mandated for all taxpayers in 2020 with paper-based filing discontinued. - Implementation supports and uptake: - Tax authority encouraged registration, assisted navigation, and set up internet kiosks at tax centers. - Only 41 percent of registered taxpayers started to use the e-tax system. - Impacts: - Low take-up of e-filing of CIT, especially by smaller firms before mandatory adoption. - Mandatory adoption promoted on-time payment and increased actual tax payment (fewer tax arrears). - Impact larger for CIT than PIT (PIT has more withholding at source). - Estimated taxable income increases: PIT increases by 42 percent; CIT increases by 80 percent. - Back-of-the-envelope calculation (assuming full adoption) indicates tax-to-GDP ratio expected to increase by 4 percent of GDP. - Note: calculation assumes full adoption rather than the observed 41 percent adoption in practice. - Footnote data: As of FY2019/20, PIT and CIT revenues were 5.3 and 2.6 percent of GDP in Eswatini; total revenue impact calculated as 5.3 x 0.42 + 2.6 x 0.8 = 4.3. ### E-invoicing: Experience of Peru - Policy change: - E-invoicing available since early 2000s but voluntary; mandatory shift introduced in 2013 with gradual rollout (larger firms and priority sectors first; smaller firms given more time). - Measured impacts: - Firms declared higher sales by 6.6 percent. - Firms declared higher deductions on the VAT paid for inputs by 4.5 percent. - Resulted in higher net VAT liability by 7.2 percent. - Net VAT liability increase larger among small firms by 9.7percent. - Sector heterogeneity: transportation sector net VAT liability increased by 16 percent. - Revenue translation: - In an economy with tax-to-GDP ratio 14.5 percent of GDP, a 7.2 percent increase in tax revenue translates to about 1 percent of GDP increase in tax revenue. - Caveat: firms can draw down existing stock of VAT credits to pay additional taxes rather than pay in cash. - Spillovers: - Adoption by a company spurs trading partners to voluntarily embrace e-invoicing, especially upstream partners. ### Electronic Fiscal Devices (EFDs): Experience of Ethiopia - Context and background: - Tax revenue-to-GDP ratio fell from 11.8 percent in 2002 to 8.6 percent in 2009. - A randomized control trial (Shimeles, Gurara, and Woldeyes 2017) found a reminder letter increased tax payments by 32 percent. - EFD rollout: - Electronic billing machines introduced in 2008; staggered mandate starting with bigger firms and hospitality sector in 2009 fiscal year, expanding by size, industry, and location. - Data transmitted by machines not directly used to pre-populate tax returns but valuable for ad hoc risk assessments or audits; evidence authorities do not always use data effectively. - Measured impacts: - Introduction of EFDs decreased discrepancies between sales declared in VAT vs profit tax declarations and between input costs declared across declarations. - Overall impact on tax revenues significantly positive: - Impact on net VAT revenue: 47 percent. - Impact on income tax: 12 percent. - When sample restricted to VAT registered firms, income tax impact increases to 36 percent. - Mechanism: enhanced compliance by previously non-compliant firms. - In an economy with tax-to-GDP ratio 7.3 percent, a 12 percent increase in tax revenue translates to about 0.88 percent of GDP increase in tax revenue. - Caveats: - EFDs brought significant compliance costs for small and medium taxpayers (Casey and Castro 2015). - Sustainability of revenue gain depends on continuous investment in maintenance and data analytics and on effective use of data by tax administration. - Other studies found positive effects consistent with these results: Cardoza (2012) found tax payments by companies using EFDs increased by 18.6 percent (Dominican Republic); Eissa and Zeitlin (2014) found a 6.3 percent rise in VAT revenue in Rwanda. ### E-registration: Experience of Sierra Leone and Senegal - Evidence indicates e-registration is particularly effective for property tax revenue mobilization. - Preliminary results: - Sierra Leone and Senegal studies show significant revenue mobilization from e-registration for property taxation (Prichard, Kamara, and Meriggi 2020; Knebelmann 2019). - Impact on other taxes remains unknown. ### Preconditions for Digital Tools’ Success in Revenue Mobilization - Infrastructure requirements: - Complementary infrastructures are critical: power stability and network capacity affect effectiveness (example: frequent power interruptions and congested networks reduced EFD effectiveness in Kenya and Tanzania). - Limited internet connectivity, power cuts, and taxpayers’ limited knowledge hinder e-filing (Zimbabwe example). - Better digital connectivity enhances access to information and can combat corruption. - Institutional quality and human capital: - Tax authorities must be able to use third-party data effectively; failures observed (e.g., Madagascar customs inspectors not effectively using third-party information where rent-seeking potential is high). - Operating EFDs poses difficulties for smaller taxpayers (resolving mistaken entries), producing discrepancies between EFD-reported sales and actual sales. - Tax administrators often have limited capacity to use generated information effectively, including resolving inconsistent claims. - Governance and ongoing investment: - Revenue gains from digital tools are contingent on tax administration efficacy, complementary risk management strategies, continuous maintenance, and investment in data analytics. *Source: Appendix 1. Case Studies (insea2023008).* --- _Source: https://www.imf.org/-/media/files/publications/imf-notes/2023/english/insea2023008.pdf_