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

Moyo Arewa, C. Scarpini, Kelbesa Megersa, B. Cooper and A. Esser

No 18361, Working Papers from Institute of Development Studies, International Centre for Tax and Development

Abstract: 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.

Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fle, nep-iue, nep-mon, nep-pay and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:idq:ictduk:18361

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