Digital Revolutions in Public Finance: Visionaries, Plumbers & Architects
IMF News, September 8, 2017
Source details
- Canonical URL
- Digital Revolutions in Public Finance: Visionaries, Plumbers & Architects
Other formats
Bibliographic details
- Published: September 8, 2017
Context and purpose
- Remarks by Vitor Gaspar, Director, Fiscal Affairs Department, at the plenary session “Digitalization of Public Finance: International Experience and Domestic Features,” Moscow Financial Forum, Moscow, September 8, 2017.
- The talk summarizes themes from the IMF book Digital Revolutions in Public Finance and highlights opportunities and limits of digital technologies for public finance, tax policy, revenue administration, and public service delivery.
Overarching messages
- The world is undergoing profound transformations powered by information and communications technology, robots, and artificial intelligence; these change both opportunities and challenges for public finance.
- Technology is not a panacea or an end in itself; political will, vision, attention to detail, and time are required to realize benefits.
- Successful digital transformation in public finance requires three complementary roles: visionaries (setting frontiers), plumbers (building and fixing systems), and architects (designing institutions and rules).
Visionaries: shaping frontiers and possibilities
- Digitalization can change how governments collect, process, act on, and disseminate information, enabling new interactions between public administration, the economy, and civil society.
- Developing economies have opportunities to “leapfrog” to newer policy formulation, design, and implementation through smart policies.
- Example: Estonia provides about 600 e-services online; citizens can vote online, consult medical records, and file taxes using an electronic identity card.
Plumbers: implementation, systems, and leak reduction
- Emphasis on practical systems (“plumbing”) is crucial for lowering costs and reducing leakages in tax collection, compliance, service delivery, social program administration, and public finance management.
- Kenya example:
- M-Pesa money-transfer system catalyzed tax policy and administration innovations.
- Implementation included the iTax System (web-enabled tax administration) and the M-service platform for taxpayers to pay taxes and access tax information via mobile phones.
- Success depended on monetary authorities, telecommunications regulator, and Kenya Revenue Authority modernization prior to rollout.
- India (MNGREGS) example:
- MGNREGS provides up to 100 days of work for rural households.
- A randomized experiment evaluated biometrically validated payments via smart cards and found reduced leakages and shortened payment delays.
- General equilibrium effects: strengthening program effectiveness raised the market position of the low paid and led private sector employers to increase offered wages; 90 percent of the gains accrued to individuals came from this general equilibrium effect.
- Estimates of digitizing payments (chapter by Susan Lund, Olivia White and Jason Lamb):
- Digitizing payments in developing countries can lead to savings between 0.8 and 1.1 percent of GDP, on an annual basis.
- Of this total, about 0.5 percent of GDP corresponds to fiscal savings; the remainder corresponds to estimated gains for enterprises and individuals.
- Estimates are based on data for seven countries: Brazil, China, India, Indonesia, Mexico, Nigeria and South Africa.
- These seven economies correspond to more than 60 percent of GDP of all developing economies.
- Country examples within the seven:
- Nigeria: potential gains in the range from 1.0 to 1.7 percent of GDP.
- South Africa: potential gains in the range from 0.2 to 0.4 percent of GDP.
- Adoption gaps cited:
- In Nigeria and Indonesia, only 20 to 25 of the volume of transactions associated with government expenditures was digitalized.
- On the revenue side in those countries, only 10 to 15 percent of transactions used digital channels.
- Cautions:
- Estimates cited consider direct monetary savings only; indirect and general equilibrium benefits (e.g., reductions in tax evasion, improved service delivery, leveling the playing field) can be substantially larger.
- Digitalization is not a perfect solution to targeting or political-economy constraints; Ravi Kanbur cautions against over-optimism about technology solving institutional problems.
Architects: design, information, and tax system reform
- Digital information expands the information set available to tax authorities, enabling better enforcement and new policy design options.
- As richer information becomes available, tax liabilities could be conditioned on broader metrics (for example, lifetime income and wealth), allowing improved targeting of redistribution.
- Digital platforms and the emerging peer-to-peer (P2P) economy can act as interlocutors for tax administrations by providing third-party information or acting as agents (for example, withholding taxes).
- Risks if passive: failure by revenue administrations and policymakers to proactively engage digital change can increase tax-base erosion as firms and individuals exploit new avoidance or evasion opportunities.
- International taxation challenges:
- Digitalization enables companies to operate and sell electronically in multiple jurisdictions without significant physical presence.
- Options discussed include widening the current notion of being “active” in a country for tax purposes or more radically imposing corporate tax liabilities where consumers or shareholders are located rather than where production occurs.
- Digital technology is instrumental in implementing both approaches.
Policy implications and recommendations (implicit in the remarks)
- Combine vision, strategic thinking, and political will to guide digital transformation in public finance.
- Invest in practical systems (“plumbing”)—legal/regulatory frameworks, institutional modernization, and interoperable digital platforms—to reduce leakages and increase efficiency.
- Use expanded digital information to rethink tax design and enforcement while protecting privacy and addressing political-economy constraints.
- Engage regulators, monetary authorities, telecommunications authorities, tax administrations, and stakeholders interactively during design and implementation.
- Anticipate and measure indirect and general equilibrium effects (for example, labor-market impacts) when evaluating digital interventions.
Notable quantitative points (preserved exactly as in source)
- Date of remarks: September 8, 2017.
- Estonia: about 600 e-services.
- MGNREGS: up to 100 days of work for rural households.
- General equilibrium wage effect finding: 90 percent of the gains accrued to individuals came from this general equilibrium effect.
- Estimated annual savings from digitizing payments in developing countries: between 0.8 and 1.1 percent of GDP.
- Fiscal savings portion: about 0.5 percent of GDP.
- Seven countries analyzed: Brazil, China, India, Indonesia, Mexico, Nigeria and South Africa.
- These seven economies correspond to more than 60 percent of GDP of all developing economies.
- Nigeria: potential gains in the range from 1.0 to 1.7 percent of GDP.
- South Africa: potential gains in the range from 0.2 to 0.4 percent of GDP.
- In Nigeria and Indonesia only 20 to 25 of the volume of transactions associated with government expenditures was digitalized.
- On the revenue side the proportion was only 10 to 15 percent using digital channels.
- Aadhaar program: in early 2017, the program had already reached 1.15 billion people.
Remarks by Vitor Gaspar, Director, Fiscal Affairs Department, “Digital Revolutions in Public Finance: Visionaries, Plumbers & Architects,” IMF, September 8, 2017.