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Created with Fabric.js 1.4.5 INFORMATION TECHNOLOGY & FISCAL CAPACITY IN A DEVELOPING COUNTRY: Evidence from Ethiopia Governments in developing countries are constrained by limited fiscal capacity What is the Impact of ETS ETS (Electronic Tax Systems) have been implemented to monitor tax compliance using modern IT like ESRMs (Electronic Sales Registry Machines) Average GDP share of government revenue in low-income countries was 12.1% compared to high income OECDs 25.2 %Governments with a bare minimum of tax administration infrastructure find it costly to monitor earnings and enforce tax compliance. Reforms in the Tax System Introducing new taxesImproving administrative capacityof tax authority ETS results in large significant VAT payments Advances in IT offers cheaper possibility for gathering & analysing taxpayers dataAverage amount of VAT paid by firms increases substantially after adoption of ESRMs Effect driven by firms more likely to evade taxes prior to ESRM use (ESRM use increased tax compliance) What was key? ERCA required several firms to use ESRMs Over the past 5 years, VAT contributed nearly ½ of indirect domestic tax and of total domestic tax " "Firms with high cost of evasion wouldnt be affected by ESRM; Tax payments by firms with lower cost of evasion will change following ESRM use since effective tax rate increases." Background Information Outcomes Availability of realtime data provides ERCA with possibility of monitoring reported revenue on daily basis Taxation in Ethiopia GDP per capita US$1,000 (2010)Substantial gap between tax revenue and government expenditureTax revenue as a share of GDP at a relatively low level of 12%Over 40 % of tax revenue raised from international trade Electronic systems has attracted developing countries gov. as relatively cheaper alternative for monitoring earnings information and improving their fiscal capacityEvidence points to a possible positive contribution of IT revolution to fiscal capacity What We Conclude Read more at:
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