Digitization of public finance
June 02, 2019
» Policy Briefing on" Digitizing Public Finance "... Click here to view
M / "Policy Brief" addresses the "digitization of public finances"
The Arab Monetary Fund (AMF) launched a new periodic series entitled "Policy Brief" aimed at supporting decision-making in Arab countries by providing brief research papers that address key priorities and topics of interest to member countries with policy recommendations.
Which focuses on the digitization of public finances, and in this regard we would like to show the following:
We would like to illustrate the following factors that reinforce the importance of the shift towards digitizing public finances:
Studies indicate that the shift to electronic payment and collection on both sides of the budget is saving about $320 billion a year in developing countries.
- Taxation has led to a 50% increase in India's tax base in less than a year.
- In some countries the digitization of value added tax systems has contributed to an increase in tax revenues by up to 20%
- The use of large data technology increases the efficiency of indirect tax collection and helps to combat tax evasion.
- There are promising opportunities for Arab economies to benefit from digitizing public finances to increase the efficiency of public finances.
- Public finance digitization has enabled governments to increase the efficiency of social transfer systems and to improve the efficiency and transparency of public procurement systems.
- The digitization of public finances helps to build detailed, timely and short-term databases that enhance economic and financial planning.
- Arab governments are keen to shift towards digitizing public finances in the context of their national plans for digital transformation and financial reform.
- The existence of national visions of e-transformation, strategies for financial inclusion and electronic identity systems are essential for successful digitization of finances.
- Protecting the confidentiality and privacy of data and supporting cybersecurity is essential to reduce the potential risks of digitization of public finances.
Digitization of public finances: economic gains
1. Digitalization of public finances addresses many aspects, including digital transformation in managing the two aspects of the public budget (revenues and public expenditures), especially through the adoption of electronic collection and payment systems.In terms of public revenues, digitization of taxes has helped many countries increase tax collection levels And the expansion of the tax base through the transition to electronic systems for approval, tax compliance, collection and e-billing, while digitizing public expenditure contributed to increasing the efficiency of government procurement systems and combating corruption and improving the effectiveness of social transfer systems through the establishment of D more accurate for those data are eligible for support, and direct cash transfers to them through payment channels, the electronic safe and easy way, and it can be verified, such as mobile phones, using the signature fingerprint biometric, thus enabling governments to reach a broad base of beneficiaries less expensive.
2. The digitization of public finances is linked to the adoption of the latest technical systems in relation to other aspects of financial policy, including GFMIS, DMFIS and other systems that have helped to increase the levels of transparency, comprehensiveness and accuracy of the state budget processes.
3. Helps to achieve annual economic savings estimated at between 0.8 and 1.1% of GDP in developing countries at least between $220 and $320 billion.
4. Public expenditure digitization can contribute to the creation of more accurate databases for eligible government support and channel cash transfers to them through easily accessible channels such as mobile phones and biometric footprint, thereby enabling governments to reach a broad base of beneficiaries at the lowest cost.
5. The tools of digitizing public finances and public financial management systems have facilitated the process of building detailed, timely and short-term (daily) databases, which helps to achieve two important advantages.
1. Increasing the efficiency of the state budget processes. The Ministries of Finance have comprehensive statistics on government transactions Including tax receipts, wage payments and debt issuance.
2. Use these information bases as a good tool for economic and financial planning over the medium term by facilitating the assessment of the expected impact of financial policies on the behavior of economic actors and levels of tax compliance. Thier any college planned policies on the variables involved on both sides of the income and expenses.
Digitization of public finances: some global experiences
- The United Kingdom, Australia and Russia collect income and corporate taxes immediately through e-payroll and e-billing systems. The UK has been able to address tax evasion through digital solutions. The UK Customs Department uses large data technology to detect fraudulent behavior of border importers,
The annual customs revenue is up to 1-2% of GDP. Digital transformation also helped to increase the participation of SMEs in government procurement systems in Mexico by 20% in 2018 compared to 2017.
In terms of digitization of public finances in developing countries, the government in China is able to review electronic billing systems and use the techniques of bulexin to verify corporate compliance with VAT and fight tax evasion, while a pilot pilot of digitization of public finance is available in India, National Biometric Identity Project known as Aadhaar
The largest national identity project in the world with a total population of 1.2 billion citizens, 99% of India's population make up about 15% of the world's population. The system is based on 12 digits supported by biometric fingerprint authentication, which provides a secure and unique identification by examining the fingerprint or iris at the service points and associated with the mobile number, although this system has been adopted with the aim of increasing levels of financial coverage and increasing the number of bank accounts - Increased by about 240 million bank accounts within a few months of the system's launch - but also enabled the government to increase the efficiency of social remittance systems and to pay pensions, through which the payments of support programs are delivered, Two rights associated Biometrics anywhere in India, including places where bank branches or machines are not available for ATM automated via mobile phone identification system. The system also enabled the government to periodically revise the lists of beneficiaries of social transfers to prevent duplication or access to support for non-beneficiaries.
- The system is connected to more than one billion bank accounts and mobile phones and has been executing transactions worth $12 billion.
The government estimates that it has saved the government about $10 billion in 2017 and 2018, while the cost of implementing it has reached $1.3 billion. The development of e-payment systems in India has contributed significantly to the success of the experiment, as it has witnessed a remarkable development recently, which is expected to reach the size of the electronic payment market in India to $500 billion annually by 2020, which will qualify the electronic payment market To contribute about 15% of GDP.
The cooperation of all parties and the great political support of the project contributed to its success.
Digitization of Public Finance: Some Arab Experiences
- Within the framework of its national plans for digital transformation and its efforts for financial reform, Arab governments have shifted towards digitizing public finances. Many Arab countries have achieved significant successes in this context. In Egypt, the shift towards digitization of public finances comes in the context of the "Sustainable Development Strategy: Egypt's Vision 2030" and the National Program for Economic Reform, which includes a package of fiscal reforms to modernize public finance management, improve resource mobilization and enhance the efficiency of public spending using digital technologies. (GPC) and the Treasury System
(TSA) and GFMIS across the country. Accordingly, government paper checks have been canceled to replace the new electronic payment system, through which the various payment orders executed by the government accounting units are transferred directly to the bank accounts of customers with the government and its employees.
1. The need for an integrated national vision for digital transformation in accordance with a gradual framework supportive of this transformation that ensures the participation of all concerned parties according to a clear timetable that takes into account the provision of the requirements and infrastructure supporting this comprehensive transformation at various levels. And specific roles for stakeholders to ensure the success of this transformation.
2. Financial inclusion is a foundation for the success of public digitization initiatives. The key to successful public digitization initiatives based on the shift towards electronic payment and collection systems. The population's access to these digital services requires a supportive national vision to increase levels of financial coverage with a focus on disadvantaged areas and provide the necessary technologies to facilitate this. Enabling access to the government's tendency to digitize public finances.
3. The need to focus on privacy protection, data confidentiality and cybersecurity considerations Despite significant gains in the digitization of public finances, the experiences of some countries indicate that there are some risks associated with this transformation, especially with regard to breaches of these systems and violation of privacy and confidentiality of data Registered.
4. Institutional, legal and human capacity constraints Digital transformation initiatives require government efforts to support the institutional, legal and human resources capacities of ministries of finance and state budget implementation units. In addition to some of the institutional and organizational changes imposed by this type of transformation, with an emphasis on the development of human capacities in the ministries of finance and budget implementation units.
The need to support the technical architecture Digital digitization initiatives have a supportive digital infrastructure for this transformation, most notably the widespread spread of communication and information technology technologies, particularly the widespread use of mobile phones and Internet access. In some Arab countries, there is a need to enhance citizen access to the infrastructure Especially in disadvantaged and remote areas, which will help governments make significant gains from the trend towards digitizing public finances.