How to approach the taxation of Digital financial services? A framework to understand and assess tax policies on Digital financial services

Project Researchers: Laura Munoz, ICTD, Mick Moore, ICTD & Phil Mader, Institute of Development Studies
Current Project

How best to tax digital financial services (DFS), namely digital payments? This project seeks to address this question and provide governments with a framework to better understand and approach this challenge.

Considering the rapid growth in the use of DFS, including mobile money and other digital payments, governments are confronted with the dilemma of whether and how to tax them to support domestic resource mobilisation. A sudden imposition of direct taxes on money transfers, mobile money and similar transactions, without evidence regarding the impact, could produce undesirable distortions in the market and run counter the goal of tax equity. Moreover, a debate has been missing in the literature as to which role could taxation play in enhancing DFS market development and financial inclusion.

This paper will inform policymakers about how best to approach DFS taxation by analysing the key variables and actors at play, as well as the existing taxation systems for DFS, to later link them to a standard tax assessment framework and a theory of change regarding the impacts on users. This analysis will result in the identification of the key questions that need to be answered to place taxation decisions regarding DFS on a solid evidence base.