Effective tax administration is critical in enhancing growth and creating jobs

Tax administration plays a vital role in driving economic growth and job creation. Efficient, transparent, and fair tax systems support business expansion, encourage formalization, and generate revenue for public investment. However, inefficient tax administration can hinder business growth and discourage investment. Improving tax administration can unlock employment opportunities through four key channels: increasing investments in growth, reducing compliance costs for businesses, promoting formalization, and enhancing investor confidence.

Figure 1: Better tax regulation, administration and implementation (World Bank’s B-Ready Taxation Score) is associated with higher GDP per capita, labor productivity and lower levels of informality

Expanding Fiscal Space for Job Creation

A well-functioning tax administration enhances domestic resource mobilization, enabling governments to invest in infrastructure, education, and social services—critical drivers of growth and employment. Increased tax revenues allow for large-scale public projects, such as road construction, which enable economic growth and create immediate jobs, while investments in human capital yield long-term economic benefits.

Recent evidence shows that enhancing internal efficiency—through improved human resource management, taxpayer registration, voluntary compliance mechanisms, and tax enforcement—enables tax administrations to unlock additional revenue. Additionally, many tax administrations have adopted digital solutions such as online filling, electronic payments, and the use of data analytics to improve efficiency and compliance, leading to increased revenue collection. 

Reducing Compliance Costs to Support Business Expansion

High compliance costs and complex tax regulations often hinder business productivity and growth, limiting their capacity to create jobs. Streamlining tax compliance—through digitalization and simplified procedures—reduces administrative burdens and enables businesses to allocate more resources toward innovation and expansion. Providing clear tax guidance improves compliance while lowering costs. Digital tax filing systems, e-invoicing, and automated tax assessments have significantly improved compliance rates and reduced compliance costs for taxpayers. By leveraging such tools, governments can expand their fiscal space without overburdening businesses, thus fostering an environment conducive to growth and employment.

Encouraging Formalization for Sustainable Employment

In many developing economies, a significant portion of employment exists in the informal sector, where businesses operate outside regulatory frameworks. While informal businesses provide income opportunities, they often lack stability, social protections, and access to finance, limiting their growth potential. Moreover, when businesses transition from the informal to the formal economy, they gain access to credit, participate in government procurement, and integrate into formal supply chains.

Encouraging tax compliance through simplified procedures, improved taxpayer services, and clear communication of benefits—such as those offered by digital tax tools—can promote formalization. For instance, in 29 OECD countries, a 10% reduction in the tax administrative burden led to a 4% increase in annual business entry rates. Evidence from Brazil’s Simples Nacional tax regime demonstrates that tax simplification for SMEs encouraged business registration, led to higher revenues, increased employment, and greater contributions to social security systems.

Strengthening Investor Confidence to Stimulate Job Creation

Predictable and transparent tax enforcement fosters a business-friendly environment by reducing uncertainty. Investors seek stable and fair tax systems where compliance is rewarded, and tax burdens are distributed equitably. Weak enforcement—such as selective tax audits, unclear dispute resolution mechanisms, or arbitrary penalties—undermines trust and discourages investment.

Governments can build investor confidence by ensuring fair enforcement practices, maintaining transparency, and implementing risk-based audits. A well-functioning tax administration should prioritize trust-building measures, such as clear communication of tax obligations and accessible dispute resolution mechanisms. When businesses perceive tax systems as fair and reciprocal, with revenues visibly translating into high-quality public services, they are more likely to invest, expand operations, and generate employment opportunities.

Conclusion

Effective tax administration is a powerful tool for job creation. By improving revenue collection, reducing compliance costs, supporting business formalization, and fostering investor confidence, governments can create an environment where businesses thrive, and employment grows. Digital transformation, transparent enforcement, and streamlined tax procedures are key to maximizing these benefits. As economies evolve, tax administrations must adapt to changing business models and technological advancements, ensuring that reforms remain efficient, equitable, and growth oriented. Strengthening tax administration is not just about raising revenue—it’s about building a more dynamic and inclusive economy where businesses and workers can succeed.