Digital Pathways publication
Fiscal regimes and digital transformation in Sub-Saharan Africa
Benno NduluCornel JosephKarline Tryphone
This paper investigates how the fiscal authorities, through tax policies or fiscal incentives, can play an important role in supporting digitalisation of the economy (digital transformation) to exploit its opportunities. The authors' approach is to track the influence of these policies indirectly through relevant determinants of internet adoption (connectivity and user enablers). Hence, they first establish empirically the influence of these enablers on internet use by estimating a reduced form equation of determinants of internet adoption (both demand- and supply-side factors). Then they assess the influence of a country’s fiscal policy stance on some of these enablers or determinants (direction and extent) throughout the internet value chain. Using these transmission mechanisms, they estimate the influence of the fiscal regime on digitalisation. The authors draw on their own empirical analysis and other relevant studies to support the paper's recommendations to the fiscal authorities. The paper's findings emphasise the importance of trade-offs between short-term revenue objectives and the longer-term opportunity costs of higher revenue, enabled by the large positive externality effects of the sector, generating higher social returns than those accruing privately.