Effectiveness of Digital Tax Administration in Nepal
Effectiveness of Digital Tax Administration in Nepal
-RA Sunil Man Shakya (MBA, LLB, Ph.D. in Management)
ORCID: https://orcid.org/0009-0004-0446-3683
The author is member of ICAN. He can be reached at: Sunilmanshakya@gmail.com
Abstract
Digital transformation is a key driver of efficiency, transparency, and effectiveness in tax administration worldwide. This research examines how digital transformation impacts the tax administration system in Nepal. It focuses on three factors: digital infrastructure and technological readiness, taxpayer digital literacy and adoption, and institutional capacity and administrative support. In this quantitative study, the researcher employed a questionnaire to collect data from 221 taxpayers, businesspeople, salaried individuals, and professionals who utilize digital tax services in Nepal. The data were analyzed using descriptive statistics, reliability analysis, correlation, and multiple regressions. The results indicate that all three independent variables positively and significantly affect digital tax administration effectiveness. Taxpayer digital literacy and adoption were the strongest factors. Digital infrastructure and technological readiness were the second strongest factor.
Keywords: Digital Tax Administration, E-Governance, Taxpayer Digital Literacy, Tax Administration, Digital Transformation, Nepal
1. Introduction
Digital transformation has played a key role in modernizing the public sector worldwide. Governments are using technology to improve the efficiency, transparency, accountability, and effectiveness of their services. Taxation is a vital area for digital transformation, as effective tax systems are essential for economic growth. E-filing, e-payments, electronic invoicing, and taxpayer portals have changed the taxation process significantly. These changes have reduced costs and errors in tax compliance and improved convenience for taxpayers (OECD, 2016). The updates in digital governance have enhanced tax monitoring and revenue systems in both developed and developing countries (Brun et al., 2020).
In Nepal, the Inland Revenue Department has introduced various digital reforms including online PAN registration, e-filing, e-payments, VAT filing, and digital tax clearance. It indicates that Nepal has been moving towards e-governance. The government of Nepal has also embraced digital transformation in its policy framework with regard to improving the administrative efficiency and effectiveness of services (Acharya, 2021).
Nevertheless, Nepalese digital tax administration still encounters certain problems. However, many taxpayers face challenges due to poor digital infrastructure, weak internet connections, and limited technical support. Rural areas struggle with inadequate internet connectivity and low digital literacy. Additionally, a lack of awareness, institutional capability, and cyber security issues hinder effective digital tax administration (Adhikari & Goldey, 2020).
Despite considerable interest from researchers in the concept of digital governance, there is insufficient empirical research on digital tax administration in Nepal. Most of the previous studies were focused on tax compliance or administrative reforms and lacked data regarding digital infrastructure, taxpayer digital literacy, and institutional capacity.
Thus, the present study is aimed at analysing the effect of Digital Infrastructure and Technological Readiness, Taxpayer Digital Literacy and Adoption, and Institutional Capacity and Administrative Support on the efficiency of digital tax administration in Nepal.
2. Research Objectives
General Objective:
- To examine the impact of digital transformation on the effectiveness of digital tax administration in Nepal.
Specific Objectives:
- To assess the effect of Digital Infrastructure and Technological Readiness on the effectiveness of digital tax administration.
- To analyse the impact of Taxpayer Digital Literacy and Adoption on digital tax administration effectiveness.
- To evaluate the influence of Institutional Capacity and Administrative Support on digital tax administration effectiveness.
3. Hypotheses
- H1: Digital Infrastructure and Technological Readiness has a significant positive effect on the effectiveness of digital tax administration in Nepal.
- H2: Taxpayer Digital Literacy and Adoption has a significant positive effect on the effectiveness of digital tax administration in Nepal.
- H3: Institutional Capacity and Administrative Support has a significant positive effect on the effectiveness of digital tax administration in Nepal.
Research framework
Figure 1: Research Framework
4. Problem Statement
Although there have been several digital tax management systems introduced in Nepal such as electronic filing, PAN registration online, and digital payments, the efficacy of digital tax administration is restricted by certain issues. Some of these issues include poor digital infrastructure, poor digital literacy among taxpayers, poor institutional capacity, and lack of technological readiness. While digital transformation is anticipated to lead to increased efficiency and effectiveness in terms of tax administration, there is no empirical literature in the Nepalese context that explains the influence of these issues on digital tax administration.
5. Literature Review
5.1 Concept of Digital Tax Administration
The use of information and communication technologies (ICT) for tax management, including taxpayer registration and tax return filing, tax payments and compliance monitoring, and other tax-related activities, is known as digital tax administration. To manage tax revenue more efficiently and transparently, tax administrations nowadays employ a range of technological techniques. In this sense, tax administrations adopt a broad range of digital channels, such as electronic filing, electronic payments, online taxpayer portals, digital invoicing, etc. In developing countries, digital tax administration is an essential part of e-Government reforms to strengthen accountability, reduce the occurrence of corruption, and provide more effective revenue collection systems. This is because, according to a 2016 report from the Organization for Economic Co-operation and Development (OECD), digital tax administrations lower administrative costs, make tax compliance easier, and give taxpayers more convenience than traditional approaches to tax compliance (Bassey et al., 2022).
As part of the Government of Nepal's efforts to implement tax administration in Nepal through the digital process, the Inland Revenue Department is now carrying out digital tax administration initiatives, which include an online system for registering for a Permanent Account Number (PAN), an e-filing system, and an e-payment system.
5.2 Theoretical Framework
Technology Acceptance Model (TAM)
As stated in Fred D. Davis's conceptualisation of the Technology Acceptance Model (TAM), an individual's choice to accept technology will depend on both its usefulness and simplicity of use (Davis, 1989). To provide a case study, if a taxpayer completes an electronic (internet-based) tax return utilising e-file and feels that the e-File and e-Payment segments are helpful conveniences, they would use these methods to successfully complete their tax returns. TAM has been used by several academics to study electronic taxation and e-government.
Theory of Diffusion of Innovation (DOI)
The Theory of Diffusion of Innovations, established by Everett M. Rogers, outlines how innovation develops throughout a society (Rogers, 2003). According to the diffusion of Innovations theory, the voluntary adoption of technology is significantly influenced by relative beneficial effects, compatibility, complexity, and transparency. As a result, the theory may be used to study the diffusion of innovation connected to digital tax when measuring taxpayer behaviour.
5.3 Empirical Review
International Studies
The favourable impacts of digitalising tax administration on its efficacy have been the subject of several worldwide study investigations. According to Brun et al. (2020), the deployment of digital technologies and information and communications technology (ICT) infrastructure can have a favourable impact on tax compliance and effective performance in developing nations. Digitalising tax administration has a number of positive aspects, according to UNCTAD (2025). These include improved administration efficiency and transparency.
Several developing nations continue to face challenges as a result of both a population that requires digital literacy and an insufficient amount of digital infrastructure. The use of electronic filing and payment systems has made taxpayers' lives considerably simpler by minimising their compliance expenses (Novik et al., 2025). According to other research, digitalising tax administration enhances transparency and makes it easier to manage public revenue systems (OECD, 2016).
Nepal Studies
According to Acharya (2021), the digitalisation of tax administration in Nepal is gradually improving through multiple e-governance initiatives. Public service digitalisation has been undertaken relatively successfully, but there are limitations because of a lack of coordination and digital readiness among institutions. Even though technology for digital tax administration has been developed significantly, customers normally are unaware of how to utilise these systems, which adds poor to high levels of institutional readiness, according to recent research conducted on Nepal (Adhikari & Goldey, 2020).
Even though Nepal has made progress in developing digital tax services, there are still some obstacles to overcome, such as issues with internet access and many other inefficiencies related to digital systems. The operational effectiveness of Nepal's digital taxation system is significantly influenced by these issues (Dhungana et al., 2025).
5.4 Research Gap
Just a handful of empirical research examined the effectiveness of digital tax administration in Nepal, despite the reality that several studies have been conducted about digital governance and digital taxes in Nepal. The impact of digital infrastructure, taxpayer digital literacy, and institutional capability on the efficiency of tax administration has not been adequately demonstrated by most previous studies, which have mostly been descriptive or conceptual in nature. Additionally, very few studies have included all three of these factors in their analyses using statistical techniques like regression analysis and correlation.
6. Research Methodology
6.1 Research Design
This study used statistical methods and numbers to analyse research variables in order to investigate how digitisation affects the efficacy of tax administration in Nepal. Here, several kinds of study designs were employed. A glimpse of the current state of digital tax administration was provided using descriptive design. Conversely, explanatory design assessed how many elements affect digital tax systems' performance in general (Creswell, 2018).
6.2 Sample and Population
The demographic included for this study includes citizens who file taxes, entrepreneurs and other self-employed, salaried workers, professionals, and users of digital tax services in Nepal. Groups that reflect all users of ETS systems, such as e-filing, online PAN registration through Electronic Tax, or using digital payment platforms to manage their taxes, make up the population sample. A non-probability convenience sample had been chosen because time was limited and individuals were not generally available. A total of 221 responses based on standard responses were collected for the purpose of the research. According to Hair and associates (2019), this figure is sufficient for using statistical techniques like regression analysis or correlation on the data.
6.3 Collecting Data
A structured questionnaire that was delivered to people in Nepal who utilise electronic tax services was the primary method used to collect data for the study. In addition to demographic enquiries, the structured questionnaire tested digital infrastructure, taxpayer digital literacy, institutional support, and the efficiency of digital tax administration. The study also examined secondary sources, such as reports, governmental papers, and scholarly journals, to strengthen its conclusions.
6.4 Variables and Measurement
Digital Infrastructure and Technological Readiness (DITR), Taxpayer Digital Literacy and Adoption (TDLA), and Institutional Capacity and Administrative Support (ICSA) were the three independent variables examined in this study. The dependent variable of the study was the effectiveness of digital tax administration. Each item was evaluated by respondents on a five-point Likert scale ranging from strong disagreement to strong agreement.
6.5 Data Analysis Techniques
The collected data were analysed using SPSS. Descriptive statistics were used to provide a complete understanding of the variables and the respondents. Cronbach’s Alpha was used to determine whether or not the items of measurement that were used to evaluate digital tax administration were uniform. Pearson correlation and multiple regression analysis were used to explore the relationship and effect between independent variables and the dependent variable.
Results
|
Table 1. Demographic Summary of Respondents |
|||
|
Variables |
Categories |
Frequency |
Percentage |
|
Gender |
Male |
154 |
69.70% |
|
Female |
67 |
30.30% |
|
|
Experience in Digital Tax Services |
Up to 1 Year |
44 |
19.90% |
|
1–5 Years |
60 |
27.10% |
|
|
6–10 Years |
63 |
28.50% |
|
|
More than 10 Years |
54 |
24.40% |
|
|
Education |
Up to Intermediate |
67 |
30.30% |
|
Bachelor Level |
73 |
33.00% |
|
|
Professional Degree |
38 |
17.20% |
|
|
Master and Above |
43 |
19.50% |
|
|
Occupation |
Business Person |
71 |
40.60% |
|
Salaried Employee |
65 |
37.10% |
|
|
Government Employee |
24 |
13.70% |
|
|
|
Professional |
15 |
8.60% |
According to above demographic table shows that the male respondents in the study were 69.7% and the female respondents were only 30.3%. The majority of the participants have extensive experience with digital tax services, with 52.9% of them working with digital tax services for at least five years. Most of them had at least a bachelor’s degree and so would probably be able to understand and evaluate the standard attributes of digital-based tax systems. The most significant groups are business people and salaried employees, who are the biggest users of Nepal’s digital tax systems. Given this demographic profile, it seems reasonable to assume that the respondents have real life experience with electronic tax systems. This provides them with a good basis for evaluating the effectiveness of digital tax systems.
|
Table 2. Descriptive Statistics and Reliability Analysis |
|||
|
Variables |
Mean |
Std. Deviation |
Cronbach’s Alpha |
|
Digital Infrastructure and Technological Readiness (DITR) |
3.911 |
0.253 |
0.726 |
|
Taxpayer Digital Literacy and Adoption (TDLA) |
4.502 |
0.403 |
0.848 |
|
Institutional Capacity and Administrative Support (ICSA) |
4.295 |
0.485 |
0.914 |
|
Effectiveness of Digital Tax Administration (EDTA) |
4.786 |
0.287 |
0.749 |
The findings of this study revealed positive perceptions on digital transformation in Nepal’s tax administration on the three dimensions of digital infrastructure & technical readiness (M = 4.911), taxpayer digital literacy/adoption (M = 4.502), and institutional capacity & administrative support (M = 4.295). The average scores indicate that people have a very positive perception about the digital tax system of Nepal. They find the assistance useful and consider it easy to access. The respondents’ experience with the system seems to be generally positive. With the highest mean score (M = 4.786), respondents showed their strongest support for the effectiveness of digital tax administration, indicating that they were highly confident that Nepal's digital tax system will improve taxpayer convenience, efficiency, and transparency.
The internal consistency of the measure's scales was determined by a second-stage reliability analysis. According to Hair et al. (2019), all Cronbach's alpha values were higher than the recommended minimum level of 0.70, which is considered acceptable to excellent reliability by a standard. In particular, Digital Infrastructure & Technical Readiness showed acceptable (α = 0.726), while Institutional Capacity & Administrative Support showed the highest reliability rating (α = 0.914). As a result, it was shown that the study's measurements were acceptable reliable to be employed in the statistical analysis that followed.
|
Table 3. Correlation Matrix |
||||
|
Variables |
DITR |
TDLA |
ICSA |
EDTA |
|
Digital Infrastructure and Technological Readiness (DITR) |
1 |
.318** |
.451** |
478** |
|
Taxpayer Digital Literacy and Adoption (TDLA) |
318** |
1 |
.664** |
760** |
|
Institutional Capacity and Administrative Support (ICSA) |
451** |
.664** |
1 |
.649** |
|
Effectiveness of Digital Tax Administration (EDTA) |
478** |
.760** |
.649** |
1 |
Correlation is significant at the 0.01 level (2-tailed).
The three predictor variables all have positive relationships with the outcome variable, which is the effectiveness of digital tax administration (EDTA), according to the correlation analysis's results. With a correlation value of 0.478 and a significance level below 0.01, Digital Infrastructure and Technological Readiness both demonstrated significantly favourable relationships with EDTA. In essence, tax administration is more efficient when there is a reliable digital tax system. Compared to both Digital Infrastructure and Technological Readiness, Taxpayers' Digital Literacy and Adoption had a stronger positive correlation to EDTA (r = 0.760, p < 0.01). This demonstrates that taxpayers who are competent in using a digital tax administration system to voluntarily administer their taxes are more likely to do so as well. The finding supports Davis' 1989 Technology Acceptance Model. According to this model, a person's decision to utilise a technology may be influenced by how practical and simple it appears to be.
Additionally, compared to Digital Infrastructure and Technological Readiness, Institutional Capacity and Administrative Support shown a strong positive correlation with EDTA (r = 0.649, p < 0.01). It indicates that the system functions better when an administration is more willing to provide technical assistance and has a strong commitment to using the system. In short, the three main variables, which are institutional support, taxpayer adoption and technology readiness, have been demonstrated to result in enhanced results in the digital tax administration.
Regression analysis
The regression model's overall explanatory power is displayed in the model summary table. It was implemented to examine how the effectiveness of Digital Tax Administration in Nepal is affected by Institutional Capacity and Administrative Support (IV3), Taxpayer Digital Literacy and Adoption (IV2), and Digital Infrastructure and Technological Readiness (IV1). The purpose of this analysis is to better understand how each factor affects digital tax systems.
|
Table 4. Model Summary |
|||||
|
Model |
R |
R Square |
Adjusted R Square |
Std. Error of the Estimate |
|
|
1 |
.808a |
0.654 |
0.649 |
0.16988 |
|
|
a. Predictors: (Constant), Institutional Capacity and Administrative Support (IV3), Digital Infrastructure and Technological Readiness (IV1), Taxpayer Digital Literacy and Adoption (IV2) |
|||||
The model summary results are R = 0.808, R² = 0.654, and Adjusted R² = 0.649.
The regression analysis demonstrates that every independent factor has a significant and positive impact on the effectiveness of digital tax administration (EDTA). The model summary's R value of 0.808 indicates a significant correlation between predictors and the dependent variable. The R2 value of 0.654, which indicates that Digital Infrastructure and Technological Readiness, Taxpayer Digital Literacy and Adoption, and Institutional Capacity and Administrative Support contribute to 65.4% of the variance in the effectiveness of digital tax administration, demonstrating strong explanatory power
|
Table 5. Impact of variables for all samples |
|||||
|
Coefficients |
Unstandardized Coefficients |
Standardized Coefficients |
t |
Sig. |
|
|
B |
Std. Error |
Beta |
|||
|
(Constant) |
1.535 |
0.195 |
7.864 |
0.000 |
|
|
Digital Infrastructure and technological Readiness (IV1) |
0.249 |
0.051 |
0.219 |
4.899 |
0.000 |
|
Taxpayer Digital Literacy and Adoption (IV2) |
0.414 |
0.038 |
0.582 |
10.888 |
0.000 |
|
Institutional Capacity and Administrative Support (IV3) |
0.097 |
0.034 |
0.164 |
2.883 |
0.004 |
|
a Dependent Variable: Effectiveness of Digital Tax Administration |
|||||
One predictor, "Taxpayer Digital Literacy and Adoption" (β = 0.582, p < 0.001), appears to be the most predictive among those related to the effectiveness of digital tax administration (i.e., EDTA). This means that taxpayers that are knowledgeable and trustworthy, as well as willing to use the online portals, are the ones who benefit the most from electronic taxes. This is because previous literature emphasizes the importance of digital literacy in e-governance, according to UNCTAD in 2025 and Novik et al. Moreover, “Technological Readiness” and “Digital Infrastructure” contribute greatly to EDTA (β = 0.219, p < 0.001). It implies that there should be an assurance in safety measures, a reliable Internet connection, and user-friendly interfaces. These results are also supported by Brun et al.'s 2020 study.
EDTA was shown to be positively impacted by institutional capability and administrative support, however not as significantly (β = 0.164, p = 0.004). As a result, having trained personnel on hand, commitment from the organization, and technological support would be favourable. Overall, the findings demonstrate that taxpayer digital literacy is the most important predictor of the effectiveness of digital tax administration (i.e., EDTA) in Nepal; therefore, institutional support, technological infrastructure, and taxpayer readiness are also essential.
8. Discussion
Regression analysis demonstrates a positive significant effect on the Effectiveness of Digital Tax Administration (EDTA) from Digital Infrastructure and Technological Readiness (DITR), Taxpayer Digital Literacy and Adoption (TDLA), and Institutional Capacity and Administrative Support (ICSA) (the model explained 65.4% of the variance in EDTA).
The effectiveness of the digital transformation process depends on taxpayers' awareness and readiness to adopt and make use of digital systems, since their digital literacy and adoption have been determined to be the most significant predictors of effectiveness. The findings support Davis's 1989 Technology Acceptance Model (TAM), which demonstrates that individuals prefer using technology because they find it useful and easy to use.
Additionally, EDTA is positively impacted by institutional capacity and administrative support, but this effect is not as strong compared to that of other factors. This indicates the need of staff training, institutional commitment, and technical assistance in maintaining digital improvements, as suggested by Adhikari and Goldey (2020). As a result, the Inland Revenue Department must improve cyber security, taxpayer assistance, and training.
In short, this study demonstrates that an integrated approach including institutional capacity, taxpayer readiness, and technology infrastructure is necessary for effective administration of digital taxes in Nepal.
9. Conclusion
The effect of digital transformation on the effectiveness of tax administration in Nepal was examined in this study. It focused on how various impact groups relate to a particular category and how each influences how effectively digital tax administration performs there. The findings demonstrate that the effectiveness of digital tax administration in Nepal is positively affected by institutional capacity, administrative assistance, the quality of digital infrastructure, technology readiness, and the digital literacy and adoption rates of taxpayers. Of all three variables examined, taxpayer adoption and digital literacy appear to have the most significant effect.
The above discussion demonstrates that effective digital infrastructure, strong institutions, and strong administrative support are necessary for the smooth operation of tax systems. These factors contribute to the process's higher level of accessibility and transparency. In summary, Nepal's tax administrations are making progress toward digital transformation. This can be observed in the increased use of electronic filing, online PAN registration, and electronic payment systems.
These results suggest significant decisions regarding policies. Enough funds must be set up for digital infrastructure by the Inland Revenue Department and the Government of Nepal. Additionally, taxpayer education must be emphasised. Furthermore, improving the organization's capacity to implement digital tax systems is essential. In an effort to close the digital divide between urban and rural communities, the government should also offer more assistance.
This research demonstrates how digital technology has huge opportunities to transform Nepalese tax administration.
10. Recommendations
Development of Infrastructure
Through increasing internet connectivity, reliable and efficient digital operations, and support for technology-based tax revenue collection methods, the Department of Internal Revenue and the Government of Nepal should make an effort to further develop its digital infrastructure. People in rural areas need special attention when it comes to internet access. The taxpayer will also benefit from improvements in online tax payments and electronic filing.
Awareness of Taxpayers
To educate and familiarise users with utilising electronic tax systems, taxpayers should get training in digital literacy and electronic tax systems, such as through standardised workshops and online courses.
Internet safety
To ensure the safety of taxpayers' personal data, government cyber security initiatives must be improved. To assist stop any kind of cybercrime, cyber security measures must include data security procedures, safe electronic payment methods, and system monitoring.
Organisational Capability
Training for tax officers must include technical improvement, administrative improvement, and career development, among others. The coordination between institutions and technical experts plays an important role in digital transformation in taxes.
References
Acharya, S. (2021). Digital governance reforms in Nepal’s public sector. Asian Journal of Public Administration, 43(2), 120–138.
Adhikari, P., & Goldey, P. (2020). Tax administration capacity in Nepal. Journal of Development Studies, 56(8), 1456–1472. https://doi.org/10.1080/00220388.2019.1677890
Bassey, E., Mulligan, E., & Ojo, A. (2022). A conceptual framework for digital tax administration: A systematic review. Government Information Quarterly, 39(4), 101754. https://doi.org/10.1016/j.giq.2022.101754
Brun, J.-F., Chambas, G., Tapsoba, J., & Wandaogo, A.-A. (2020). Are ICTs boosting tax revenues? Evidence from developing countries (CERDI Working Paper No. hal-02979897).
Creswell, J. W., & Creswell, J. D. (2018). Research design: Qualitative, quantitative, and mixed methods approaches (5th ed.). SAGE Publications.
Davis, F. D. (1989). Perceived usefulness, perceived ease of use, and user acceptance of information technology. MIS Quarterly, 13(3), 319–340. https://doi.org/10.2307/249008
Dhungana, C., Sharma, G., Pokharel, B., & Baral, S. K. (2025). Towards standardized tax reporting: Leveraging business analytics in the Inland Revenue Department. Journal of Engineering Issues and Solutions, 4(1). https://doi.org/10.3126/joeis.v4i1.81599
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2019). Multivariate data analysis (8th ed.). Cengage Learning.
Novik, N., Popova, O., Matiashvili, T., Garces, A. D., & Nam, S. (2025). Data insights on tax digitalization: Why direct e-payments matter. World Bank.
OECD. (2016). Advanced analytics for tax administration. OECD Publishing.
Rogers, E. M. (2003). Diffusion of innovations (5th ed.). Free Press.
UNCTAD. (2025). Strengthening fiscal revenues in developing countries in the context of e-commerce and digital trade (TD/B/C.I/EDE/9). United Nations Conference on Trade and Development.