The Influence of ICT adoption on Tax Revenue: The Mediation role of Economic Growth

Abstract

This study seeks to elucidate the mixed findings surrounding the influence of ICT integration on tax revenue. It examines the effects of ICT investments, ICT imports, internet usage, and broadband penetration on tax revenue in Tanzania, emphasizing the role of economic growth as a mediating factor. Grounded in TAM, TOE, and Production Theory, this study follows a positivist philosophy and deductive approach, examining 25 years of time-series data through ARDL modeling and Structural Equation Modeling (SEM). Results show that ICT investments, ICT imports, and broadband penetration positively impact tax revenue in the long run, while internet usage has a negative effect. Economic growth partially mediates the relationship between ICT investments and tax revenue, and fully mediates the effects of ICT imports, internet usage, and broadband penetration. This research verifies and confirm the mediation effect of economic growth on the influence of ICT on tax revenue. Again, it challenges prevailing assumptions regarding internet usage's role in tax compliance, providing novel insights into ICT’s long-term fiscal impact through robust methodologies, and expanding existing literature. The findings underscore the need for policymakers to strategically manage ICT development to boost tax revenue while addressing potential adverse effects of internet usage, ultimately fostering sustainable economic growth.