Issue paper : fiscal policy, trade and the private sector in the digital era

Abstract

African countries have a little over a decade to achieve the 2030 agenda for sustainable development, which aims to lift millions of Africans out of extreme poverty, reduce inequality and enhance sustainable development. However, despite fiscal reforms that raised revenue to gross domestic product (GDP) ratios to an average of above 15 per cent between 2000 and 2017, there remains a significant financing gap to bridge in order to meet the sustainable development goals. Experiences across the globe demonstrate that fiscal policy effectiveness and efficiency can significantly benefit from digitization processes. African countries have the potential to increase tax revenues by between 3 per cent and 4 per cent, by bringing into the tax bracket the “hard to tax” sectors such as agriculture and the digital economy, and the informal sectors. The use of digital technology alone has the potential to raise fiscal revenue by a similar percentage. The aim of the present report is to articulate and frame key policy issues and imperatives for African governments to address challenges and maximize the efficiency and effectiveness of fiscal policy in a digital economy, with special emphasis on the link between trade, the private sector and fiscal performance in a digital era. In particular, the present report analyses how fiscal policy can leverage digitization to increase revenue collection and management, the benefits of digitization to the economy and fiscal policy through private sector and trade, and the challenges of administering the current revenue frameworks in the digital era.