_Collection Capacity: Electronic Tax Transactions_ Another core application of information technology is the processing of tax information and payments. For taxpayers, electronic filing and payment options reduce tax compliance costs. For tax administrators, they reduce the risk of data entry errors and free up personnel who would otherwise be needed for processing paper returns. The generation of tax information and tax withholding at its source by a third-party agent – e.g., employers and financial institutions – is another fiscal innovation that is facilitated by the availability of appropriate data systems. These innovations appear important for tax performance globally, with evidence ranging from individual reforms – e.g., withholding of sales tax by credit card companies in Costa Rica (Brockmeyer and Hernandez, 2022) – to cross-country analysis comparing 100 countries at various levels of development (Jensen, 2022). Electronic processing of tax information and payments can also provide digitized administrative data to the tax authority that may then support the automation of many tax processes, such as advanced analytics for risk-based audits and targeted enforcement efforts.<sup>4</sup> When a tax authority more often carries out its duties through e-transactions, and less through inperson interactions, there is also less scope for unsanctioned behaviors like extortion and collusion. At the same time, shifts to digitization may weaken tax officials’ ability to monitor or gain contextual knowledge about taxpayers. We return to this tradeoff later in the paper when we discuss interactions between tax officials and technology tools.

One important concern in the use of electronic systems to facilitate compliance is the potential impacts on equity (Bachas et al. (forthcoming) discuss equity considerations in taxation in lowerand middle-income countries in detail). On the one hand, electronic systems may help lowerincome and less-privileged taxpayers. E-filing, e-payment, and withholding can reduce compliance costs, often a larger proportion of income for such taxpayers. Similarly, automated systems that log payments can facilitate installment plans to accommodate liquidity-constrained taxpayers (for evidence from Mexico, see Brockmeyer et al., 2023). On the other hand, evidence across different contexts suggests that taxpayers who are female, rural, less educated, or those heading less-established companies are less likely to use e-services and, where compulsory, may face higher costs of adoption, with evidence from small businesses in Nigeria (Efobi et al., 2019), general use of e-tax services in Rwanda (Santoro et al, 2023), and value-added taxes in Kenya, Tanzania (Eilu, 2018), and Rwanda (Mascagni et al., 2023). Electronic systems, coupled with other features of the tax system can also lead to unintended consequences that disadvantage lowerincome taxpayers. For example, if taxes are over-withheld (as is common) and tax filing is optional (due to, e.g., exemptions for taxpayers earning below a minimum threshold), non-filers will face a higher effective average tax rate, with this impact concentrated among lower-income taxpayers (see Hauck and Wallosek (2023) for evidence from Germany).

> 4 In addition to supporting tax compliance monitoring, data from tax systems also supports revenue forecasting and financial reporting. Beyond tax administration applications, information generated for tax purposes can also generate indirect benefits for the design of economic policies more generally. For example, data on firm-to-firm transaction networks can inform about the nature of trading structures, their resilience to financial and climate shocks, and opportunities to diversify supply chains. Likewise, measures of corporate growth – captured through income taxes – can assist in the targeting of industrial policy.

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