Harnessing GovTech to Tax Smarter and Spend Smarter

IMF Blog, September 7, 2023

Source details

Publication date: September 7, 2023
Authors: David Amaglobeli, Ruud de Mooij, Mariano Moszoro
Central thesis: Digitalization, done right, can equip governments to improve revenue collection and spending efficiency; requires connecting households to the internet and accelerating adoption of digital solutions in the public sector.

Global connectivity gap:
- "About 2.7 billion people still need to be connected."
- Estimated investment needed to connect unconnected households: "$418 billion."
- Bulk of investment needs are in emerging market and low-income developing economies; for low-income developing economies the requirement is "3.5 percent of GDP."
Affordability and digital literacy:
- Internet subscription costs remain high in low-income developing countries; relative to average incomes, the average cost is "nine times the amount citizens in advanced economies spend."
- Government actions to improve affordability and uptake:
- Incentivize or directly invest in internet infrastructure, especially where profitability is challenging.
- Consider offering discounts or vouchers on subscription fees.
- Promote digital literacy programs, targeting reluctance among specific populations (particularly older individuals).

Revenue mobilization:
- IMF staff analysis indicates e-filing, e-invoicing and electronic fiscal devices could lead to a significant increase in tax revenues.
- Specific estimate: "the adoption of e-invoicing and electronic fiscal devices could improve revenue mobilization by up to 0.7 percent of GDP."
- Digitalization’s revenue impact is enhanced by expanding digital connectivity and ensuring sufficient staffing and expertise among tax officials.
Spending efficiency and transparency:
- Automation of budget payments using digital technologies is associated with more budget transparency.
- Analysis suggests digitalization is generally associated with an improvement in the efficiency of expenditure.
Public service delivery and social outcomes:
- Education: digital interventions (providing students with equipment and software) can improve education outcomes.
- Health: govtech can improve quality of care, increase coverage of underserved populations, and optimize resource utilization through electronic health records, telemedicine, and digital platforms for patent licensing, procuring medicine, and monitoring infectious diseases.
- Social safety nets: integrating digital ID and creating extensive socio-economic data can enable better targeting, eligibility verification, and delivery mechanisms for social assistance.

Complexity and requirements:
- Implementing large digitalization programs requires careful planning, adequate resources, political support, and appropriate change management processes.
- Digitalization may require changes in regulations and established processes, adequate staffing and expertise among officials, and strong safeguards for data security and privacy.
Potential pitfalls:
- Without adequate safeguards and planning, complex digital solutions could be counterproductive and facilitate corruption.

Dual-track approach:
- Connect unconnected households to the internet.
- Accelerate and strengthen adoption of digital solutions in the public sector.
Suggested government actions:
- Invest in or incentivize internet infrastructure in low-profitability regions.
- Use subsidies, discounts, or vouchers to make internet subscriptions more affordable.
- Implement digital literacy programs, with attention to older individuals and other reluctant groups.
- Expand staffing and technical expertise in tax administrations to capture revenue gains from e-filing, e-invoicing, and electronic fiscal devices.
- Adopt automation in budget payments to increase transparency and improve expenditure efficiency.
- Ensure regulatory updates, change management, and strong data security and privacy safeguards accompany digitalization efforts.
IMF role:
- The IMF stands ready to support countries through its capacity development in implementing govtech solutions for public finance.

Source: IMF blog page "Harnessing GovTech to Tax Smarter and Spend Smarter" (September 7, 2023).