African Tax Administration Paper 43
The digitalisation of tax payments is a growing policy priority in low- and middle- income countries, particularly in Africa, where revenue mobilisation remains a challenge. It is also clear that there are obstacles to wider adoption, while the impacts of digital payment on tax compliance are underexplored. This study examines this gap in knowledge, leveraging a 2021 zero-cash-handling mandate in Eswatini.
Using administrative tax data, we evaluate two key questions: (i) how voluntary adoption of digital payments affects compliance and (ii) the impact of mandating digital tax payments. We employ a staggered difference-in-differences (DiD) approach for voluntary adoption and a treatment-intensity DiD strategy to assess the mandate’s effects. Voluntary adoption significantly improves compliance, reducing late payments by 19 percentage points (25 per cent) and increasing payment accuracy by 5.7 percentage points (22 per cent) for broad digital payments, rising to 9 percentage points (30 per cent) for strictly digital methods. However, it has minimal impact on total tax amounts paid. The mandate, by contrast, eliminated cash payments but had more modest compliance effects, increasing tax payments by about 2 per cent. While companies pay more, they also worsen their payment accuracy, while individuals improve payment timeliness after adoption. These findings highlight distinct compliance patterns between voluntary adopters and those compelled by enforcement. The results underscore the importance of designing digital tax policies that account for taxpayer heterogeneity and behavioural responses to maximise compliance gains.
