Tax Digitalization as a Tool to Fight Tax Evasion: Economic and Legal Implications for Emerging Economies

Abstract

Tax evasion remains one of the most significant barriers to fiscal sustainability and economic development in emerging economies. Despite continuous tax reforms, governments continue to face substantial revenue losses due to informal economic activities, weak institutional capacity, and limited enforcement mechanisms. In recent years, tax digitalization has emerged as a strategic policy instrument to improve tax compliance through the implementation of electronic invoicing, digital taxpayer identification systems, online tax filing platforms, big data analytics, and artificial intelligence-based auditing. This study examines the economic and legal implications of tax digitalization as a mechanism to reduce tax evasion in emerging economies. A quantitative research design is proposed using secondary data collected from international organizations, including the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), the World Bank, and the Inter-American Center of Tax Administrations (CIAT). The analysis considers panel data from selected emerging economies during the period 2015–2024. The econometric approach evaluates the relationship between tax digitalization indicators and tax revenue performance while controlling for macroeconomic and institutional variables. The study argues that digital tax administration significantly strengthens tax compliance by increasing transparency, reducing information asymmetries, improving audit efficiency, and lowering administrative costs for both governments and taxpayers. From a legal perspective, digitalization also promotes greater legal certainty, enhances regulatory enforcement, and facilitates international cooperation against tax fraud. Nevertheless, the findings acknowledge persistent challenges associated with cybersecurity, data protection, unequal digital infrastructure, and regulatory harmonization across jurisdictions. The research contributes to the growing literature on digital governance and public finance by providing an integrated economic and legal framework explaining how digital tax systems influence compliance behavior and fiscal performance in developing contexts. The findings offer practical policy recommendations for governments seeking to modernize tax administrations while balancing efficiency, taxpayer rights, and legal accountability.