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Should Governments Tax Digital Financial Services? A Research Agenda to Understand Sector-Specific Taxes on DFS

Author

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  • Munoz, Laura
  • Mascagni, Giulia
  • Prichard, Wilson
  • Santoro, Fabrizio

Abstract

Digital financial services (DFS) have rapidly expanded across Africa and other low-income countries. At the same time, low-income countries face strong pressures to increase domestic resource mobilisation, and major challenges in taxing the digital economy. A growing number are therefore advancing or considering new taxes on DFS. These have generated much debate and there are significant disagreements over the rationale for the taxes and their likely impacts. This paper examines three key questions that could help governments and other stakeholders to better understand the rationale for, and impacts of, different decisions around taxing DFS – and to arrive at policies that best meet competing needs. First, what is the rationale for imposing specific taxes on money transfers or mobile money in particular? Second, and most importantly, what is the likely impact of DFS taxes? Third, how do the policy processes through which taxes on DFS and money transfers are introduced function in practice? The paper looks at the core principles of good taxation and presents the existing debate around whether taxes on DFS observe them. It explains why understanding the landscape of financial services is essential to designing suitable tax policies and lays out a framework for developing the necessary analysis of the impacts of taxes on DFS. It also highlights the importance of better understanding the processes that give rise to these taxes.

Suggested Citation

  • Munoz, Laura & Mascagni, Giulia & Prichard, Wilson & Santoro, Fabrizio, 2022. "Should Governments Tax Digital Financial Services? A Research Agenda to Understand Sector-Specific Taxes on DFS," Working Papers 17171, Institute of Development Studies, International Centre for Tax and Development.
    • Handle: RePEc:idq:ictduk:17171
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    File URL: https://opendocs.ids.ac.uk/opendocs/handle/20.500.12413/17171
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    Citations

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    Cited by:

    1. Favourate y Mpofu, 2022. "Sustainable mobilisation of tax revenues to enhance economic growth in Sub-Saharan Africa: Challenges, opportunities, and possible areas of reform," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(9), pages 222-233, December.
    2. Favourate Y. Mpofu, 2022. "Taxation of the Digital Economy and Direct Digital Service Taxes: Opportunities, Challenges, and Implications for African Countries," Economies, MDPI, vol. 10(9), pages 1-28, September.
    3. Favourate Y. Mpofu & Tankiso Moloi, 2022. "Direct Digital Services Taxes in Africa and the Canons of Taxation," Laws, MDPI, vol. 11(4), pages 1-20, July.
    4. Apeti, Ablam Estel & Edoh, Eyah Denise, 2023. "Tax revenue and mobile money in developing countries," Journal of Development Economics, Elsevier, vol. 161(C).
    5. Favourate Y. Mpofu, 2022. "Industry 4.0 in Financial Services: Mobile Money Taxes, Revenue Mobilisation, Financial Inclusion, and the Realisation of Sustainable Development Goals (SDGs) in Africa," Sustainability, MDPI, vol. 14(14), pages 1-24, July.
    6. Favourate Y. Mpofu & Eukeria Wealth, 2022. "The Arm’s Length Principle: A Panacea or Problem to Regulating Transfer Pricing Transactions by MNEs in Developing Countries," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(2), pages 137-152.

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    Keywords

    Governance;

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