Over the last decade, with the growing availability of high-quality administrative tax data and a rise in partnerships between researchers and governments, there has been a tremendous increase in the amount of evidence on the impact of different interventions to improve tax capacity and increase tax revenues in low- and middle-income countries. This paper examines two major themes from that body of evidence: first, the deployment of new information technology tools to facilitate identification, detection and collection, and second, the role of tax officials, both in harnessing the potential of technology as well as in complementing it. Despite the availability of viable interventions, an important question is under which conditions governments will choose to invest in tax capacity and expand tax collection. In turn, we will discuss how the current level of taxation, available technology tools, and extent of political competition may affect how the government chooses the nature and level of taxation.

# **The Role of Technology**

Electronic systems that collect, generate, process, and store vast amounts of data can support the implementation of a wide set of tax policy instruments, such as the value-added-tax, income tax withholding, customs, and property tax. In lower-income countries, tax modernization programs often seek to support the tax authority in a transition away from relying on manual processes or outdated technology and in-person interactions with taxpayers towards automated, online processes. Of the taxation-related projects approved in 116 countries by the World Bank between 2010 and 2022, 91 countries (78 percent) had a project that included a tax modernization or information technology component, according to our own analysis of World Bank projects. Examples of these projects are integrated tax administration systems for domestic taxes and customs, electronic registration of taxpayers, electronic tax filing and payment, and risk-based audit selection.<sup>2</sup> A well-integrated information technology system enables the tax authority to uniquely identify taxpayers, process information received from taxpayers and third parties to verify liabilities and compliance, and facilitate the remittance of funds to the treasury. We discuss below the use of technology for these three dimensions of tax capacity.

# _Identification Capacity: Taxpayer Identification and Registration_

Identifying taxpayers and developing a taxpayer registry are first-order challenges in many lowand middle-income countries, where proper identification systems often do not exist for individuals nor businesses, properties, and other taxable entities or tax bases. In many countries, people who do not have existing national identification are issued a “Tax ID number” when they enter the tax system. Having a Tax ID that is not linked to an individual’s national identity may serve as a stopgap measure for tax authorities with the most rudimentary systems but may also offer scope for tax avoidance. For example, without a link to personal identity, there is a danger that owners of firms that have accumulated significant tax liabilities could simply shut them down and open new ones to avoid tax penalties. Anecdotally, such maneuvers likely account in part for

> 2 Okunogbe and Santoro (2023a) provide a more comprehensive review of the use of technology in tax administration. Okunogbe and Santoro (2023b) provide applications for African countries.

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