Biometrics
India has led the way in the use of biometric technology to extend social benefits to a larger number of people (see Box 2). Technology that monitors and records biometric characteristics, such as fingerprints and iris scans, allows more accurate and cheaper authentication of an individual’s identity, ensuring that benefits reach only the intended recipients. McKinsey & Company has estimated that digitalizing government payment processes (both revenue and expenditures) could deliver savings of at least 1 percent of GDP in developing economies. This estimate overlooks second-round beneficial effects of improvements in public service delivery and widening the tax base. For example, the introduction of the new tax on goods and services in India has increased the number of registered taxpayers by 50 percent in less than one year.
BOX2:
BANK ACCOUNTS AND BIOMETRICS IN INDIA
In recent years, several government initiatives have enabled large-scale digitalization of the Indian economy. A national biometric identity program, Aadhaar, has registered about 1.15 billion residents. A program to increase access to the financial system was introduced in August 2014. By March 2017, more than 280 million bank accounts had been opened.
India’s government has capitalized on these initiatives to improve the delivery of social benefits. The Direct Benefit Transfer program, launched in 2013, significantly changed the way subsidies and payments are delivered by transferring them directly into bank accounts linked to beneficiaries’ Aadhaar biometric identity. (One such program involves subsidies for cooking gas.) In April 2017, Indians were required to include their Aadhaar number in tax filings. More recently, they were required to link their individual bank accounts to Aadhaar. The 2018 budget has proposed an Aadhaar program for businesses as well.
Though estimates vary, the Ministry of Communications and Information Technology in March 2017 put savings from such programs at the equivalent of about $7 billion over the previous two and a half years. The costs of the Aadhaar system through its first billion-plus registrations were about $1.16 a person, or $1.3 billion in total.
Developing economies are also starting to tap the vast potential offered by mobile technology. In sub-Saharan Africa alone, there were 420 million unique mobile subscribers in 2016, a number that is expected to increase to 535 million (roughly one subscriber for every two people), according to Groupe Speciale Mobile Association, an international trade organization. Kenya has been a pioneer in the adoption of mobile payments technology. Its M-Pesa system, launched in 2007, can be used to pay taxes. Such solutions may be particularly promising for fragile states, where conflict and corruption hamper tax collection and benefit payments. Mobile technology can also be used to deliver better public services, track medical records, and disseminate information.
The use of biometric authentication and digital payment systems to better target subsidies may reduce reliance on blunt redistributive instruments. One example is the application of reduced VAT rates for necessities, which, while aimed at the poor, benefit the wealthy even more. Better-targeted payments that can reliably provide relief to the poorest would be more efficient and effective. More controversially, technology has the potential to create new sources of tax revenue. Many companies, such as Facebook and Alphabet’s Google, now collect hugely valuable information on their customers when they interact with them online. If it’s true, as some say, that “data is the new oil,” do we need a special regime to tax it, as we would a natural resource?
