Working Paper

How Will Central Bank Digital Currencies (CBDCs) Influence Tax Administration in Developing Countries?

Working Paper 189

This paper explores the potential benefits and risks to tax administrations of implementing central bank digital currencies (CBDCs), a digital version of national currencies that is gaining momentum worldwide. It outlines some of the key features of CBDCs and then considers their implications for tax administration in low- and middle-income countries (LMICs) generally. The emergence of CBDCs provides LMICs with a significant opportunity to improve financial inclusion, improve payment systems and increase tax collection. CBDCs provide greater transparency, security and traceability, which could help tax authorities track income and net worth, detect tax evasion and increase tax revenue. However, there are also complex combinations of risks associated with deploying CBDCs.

The revenue authorities need to thoroughly assess how they should adapt to these challenges. Governments must also ensure that CBDCs are developed and implemented transparently, fairly and consistently with broader public policy goals. This will help maximise the potential benefits of CBDC adoption while mitigating the risks – which may be particularly significant in LMICs.

Authors

Moyo Arewa

Moyo is the Programme Director for the Local Government Revenue Initiative (LoGRI). He was previously the Manager for Strategic Initiatives at (ICTD) and, before then, a Policy Development Officer at the City of Toronto. His tax research has focused on understanding how new technologies impact tax policy, administration, and public service delivery.

Celeste Scarpini

Celeste Scarpini is a Research Officer at the ICTD, and a PhD student at the Department of Economics, University of Sussex. Her main research interests relate to tax administration in sub-Saharan Africa, from technology adoption to data management and revenue collection strategies.

Kelbesa Megersa

Kelbesa Megersa holds a PhD in applied economics. He has an interest in broad areas of development research, with his main areas of expertise being in development finance, taxation, and private sector development in developing countries. Kelbesa has worked as a researcher at the Institute of Development Studies since 2019. Prior to that, Kelbesa worked as a doctoral and post-doctoral researcher linked to the Belgian Policy Research Group on Financing for Development at University of Namur. Kelbesa has years of policy research and consulting experience. He has provided research-based policy support for the development ministry of Belgium; the Foreign, Commonwealth and Development Office; and previously for the Department for International Development of the UK, among others.

Barry Cooper

Barry Cooper is a Technical Director at Cenfri, where he is in charge of the areas of payments and inclusive integrity. He has a particular interest in the development of digital payment instruments and currencies, with an emphasis on the impact of financial regulation on human rights. Barry started his career in the insurance industry before moving into banking. As Country Head of Consumer Bank Operations for a large global bank, he gained significant exposure to payment systems, wholesale and consumer banking. Barry is a legal advisor by profession.

Antonia Esser

Antonia Esser is a Senior Engagement Manager at Cenfri and she has conducted research on financial inclusion for over 12 years. Her work focuses on digital payments, with an emphasis on remittances and payment systems architecture. Her professional practice involves assisting payments stakeholders across Africa in making evidence-based decisions.
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Publication Details

Publisher: ICTD
Date: May 2024
Citation: Arewa, M.; Scarpini, C.; Megersa, K.; Cooper, B. and Esser, A. (2024) How Will Central Bank Digital Currencies (CBDCs) Influence Tax Administration in Developing Countries? ICTD Working Paper 189, Brighton: Institute of Development Studies, DOI: 10.19088/ICTD.2024.026
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