Impact of Financial Inclusion and Digital Financial Services on Tax Revenue in South Asian Countries

Abstract

This study examined the influence of financial inclusion and digital financial services on the creation of tax revenue in developing countries of South Asia.  To achieve this objective, regression analysis was performed on a panel data set comprising six developing economies from 1991 to 2021. The WDI database of the World Bank was used to obtain data on tax revenues, financial inclusion, digital financial services, and control variables such as inflation, unemployment, and personal remittances. The results of the random effect estimator indicate that financial inclusion and digital financial services have a significant impact on tax revenues in emerging economies of South Asia. Financial inclusion has been observed to adversely impact tax revenues, while digital financial services have been found to positively contribute to tax revenues.  The study's findings indicate that authorities should prioritize the supply of digital financial services to enhance tax collections. Additionally, it is necessary to ascertain the factors that influence the provision of digital financial services in developing economies. The causes behind the adverse impact of financial inclusion on tax collections should be thoroughly examined