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

Developing countries are driving the emergence of central bank digital currencies (CBDCs) – digital versions of sovereign currencies issued by central banks. While CBDCs can potentially improve financial inclusion, improve payment systems, and increase tax collection in lower-income countries, they are also associated with a complex combination of operational and security risks. This research sheds light on the tax implications of CBDCs, including the potential risks and benefits of their implementation. It outlines some of their key features and considers challenges common to revenue authorities in developing countries. Ultimately, the paper argues that a) governments adopting CBDCs must ensure that the currencies are developed and implemented transparently, fairly, and consistently with broader public policy goals while attending to context-specific challenges, and b) tax authorities should exercise more influence on CBDC design and implementation to maximise tax system benefits and reduce the possibility of worsening current challenges and inequities. Summary of ICTD Working Paper 189