Leveraging Digital Technologies in Boosting Tax Collection

IMF Working Papers, May 9, 2025

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Stronger firm digitalization is associated with higher tax revenues across countries and higher tax paid across firms.
Firm digitalization significantly improves tax compliance among high-risk taxpayers, such as small and informal enterprises, particularly in the service sector.
Digitalization not only broadens the corporate tax base but also plays a crucial role in improving tax compliance.
Both country and firm-level analyses reveal a significant synergy between firm digitalization and the digitalization of tax administration (GovTech), underscoring the importance of promoting both to enhance tax collection.
In developing countries, it is essential to create enabling environments for firm digitalization and GovTech and address constraints to achieve their synergy effects.

A one-standard-deviation increase in firm digitalization is associated with an increase in tax revenues-to-GDP by up to 3 percentage points, conditional upon the level of digitalization of tax administration (GovTech).

Firm-level analysis reveals that firm digitalization significantly improves tax compliance among high-risk taxpayers.
The effect is particularly pronounced for small and informal enterprises and in the service sector.
Results indicate both an expansion of the corporate tax base and improvements in compliance behavior at the firm level.

Both country- and firm-level analyses show a significant synergy between firm digitalization and GovTech.
Policy emphasis should therefore target both private-sector firm digitalization and public-sector digitalization of tax administration to realize joint gains in tax collection.
In developing countries, addressing enabling-environment constraints is necessary to unlock the synergy effects.