2025 Public Sector Perspectives

Another challenge involves collecting taxes on person-to-person digital payments, especially due to large transaction volumes, the difficulty of distinguishing between personal and business transfers, and evasion of reporting requirements. As digital platforms like Venmo and Zelle become more prevalent in the digital economy, ensuring proper taxation is crucial for maintaining a fair tax system. Several countries, including Brazil, have made significant strides in leveraging digital platforms. The Central Bank of Brazil launched an instant payment system, Pix, in November 2020 to facilitate real-time money transfers between people and businesses. Since its launch, Pix has been widely adopted, with about 80% of Brazil’s adult population and 13 million firms using the system as of May 2023. 7 Approximately 71.5 million new users reported that they had not made electronic credit transfers prior to Pix’s introduction. 8 As of 2023, Pix processed over 3 billion transactions monthly, enhancing transaction transparency, reducing cash transactions, and lowering transaction costs. 9 Governments must also find new ways to tax evolving digital sectors where e-commerce operations transcend borders, making it challenging to quantify and enforce taxation measures. These digital sectors must not be overlooked if the integrity and equity of tax systems is to be upheld. For instance, Nigeria enacted a Digital Services Tax (DST) through the 2021 Finance Act, mandating digital companies with a significant economic presence in the country to remit a portion of their annual domestically generated turnover from digital activities as corporate income tax. This strategy aims to increase the tax base by requiring large digital service providers to participate in the Nigerian tax system, even if they do not have a physical branch or office. This approach is increasingly relevant with the rise of multinational digital companies operating across multiple geographies. Conclusion The opportunity for governments across the world to optimize and strengthen their tax systems is extensive; the need to do so is urgent. Fiscal deficits have ballooned due to the increasing scope and scale of public expenditures driven by infrastructure gaps, health crises, climate change and demographic shifts. While the uses of public funds are multiplying, the sources of financial resources are static or dwindling. Governments must work to enhance their institutional capacity, improve the effectiveness of their compliance and enforcement measures, and continue to innovate. The private sector also has a role to play, not only in fully complying with taxation rules and regulations, but also in making available its technology, data and connectivity to improve access to a dynamic tax base. Citi is actively engaged in finding ways to support revenue authorities through both advisory and the provision of treasury solutions necessary for building optimal systems. The bank is committed to collaborating with public sector clients to help them leverage the immense power of digital and streamlined solutions to enhance transparency and strengthen their resource mobilization capabilities. 7 https://www.elibrary.imf.org/view/journals/002/2023/289/article-A004-en.xml 8 https://www.elibrary.imf.org/view/journals/002/2023/289/article-A004-en.xml 9 https://www.elibrary.imf.org/view/journals/002/2023/289/article-A004-en.xml Citi Perspectives for the Public Sector 51