By Ramil Abbasov (10/28/2025)

In an era where technology redefines every aspect of economic life, the intersection of financial technology (fintech) and public finance has become one of the most consequential developments for governments worldwide. Once seen primarily as a private-sector innovation aimed at disrupting banking and payments, fintech is now reshaping how governments collect, manage, and monitor taxes. From digital payment systems and artificial intelligence (AI) analytics to blockchain-based auditing, fintech innovations promise to make tax administration more transparent, efficient, and equitable. Yet, they also raise profound questions about data privacy, cybersecurity, and the evolving role of the state in a digitized fiscal ecosystem.

A New Era of Digital Taxation

Tax collection has traditionally been one of the most bureaucratic and paper-heavy functions of government. Complex filing procedures, delayed payments, and administrative inefficiencies often undermine compliance and public trust. Fintech is changing that narrative. Digital payment platforms—ranging from government-supported e-tax portals to mobile wallets like M-Pesa or Paytm—are enabling taxpayers to settle dues in real time, with minimal friction.

In developing economies, where informal transactions dominate, mobile-based tax collection tools are proving especially transformative. By integrating fintech solutions with national ID systems, governments can reach small entrepreneurs, farmers, and gig workers who were previously outside the formal tax net. Kenya’s use of M-Pesa data to assess income and automate tax deductions for small traders is a powerful example of how digital ecosystems can expand the tax base without coercion.

Enhancing Efficiency through Automation and AI

Automation, driven by artificial intelligence, is emerging as a cornerstone of modern tax administration. Governments can now use AI to cross-check tax declarations with real-time financial data, identify anomalies, and detect fraudulent patterns. This not only reduces the cost of enforcement but also strengthens compliance.

For instance, the United Kingdom’s “Making Tax Digital” initiative employs data analytics to ensure seamless communication between taxpayers and the government. AI-powered algorithms flag inconsistencies before they escalate into full-blown audits, saving time and resources for both sides. Similarly, in Estonia—a global leader in e-governance—99% of tax filings are processed automatically, with refunds issued within days.

Beyond compliance, AI can help policymakers predict revenue flows with greater precision. By analyzing transaction data, consumption trends, and seasonality, governments can design dynamic fiscal strategies that respond to economic realities rather than static forecasts.

Blockchain: The Trust Revolution

Perhaps no fintech innovation holds more promise for government finance than blockchain. By providing an immutable ledger of transactions, blockchain can dramatically enhance transparency and traceability in tax systems.

Imagine a future where every taxable transaction—whether corporate income, value-added tax (VAT), or customs duty—is recorded on a blockchain that regulators can audit in real time. Such systems would make tax evasion far more difficult. For example, China has already piloted blockchain-based VAT invoicing, reducing fraud by ensuring that every invoice is digitally verified and traceable through its lifecycle.

Moreover, blockchain can streamline cross-border taxation, a growing challenge in the digital economy. With multinational corporations increasingly relying on intangible assets and digital services, traditional tax jurisdictions are becoming blurred. Blockchain could facilitate more accurate allocation of tax liabilities among countries, reducing double taxation and profit shifting.

Fintech and the Informal Economy

One of the thorniest problems in tax administration, especially in emerging markets, is the large informal sector. These unregistered businesses often escape taxation altogether, depriving governments of critical revenue. Fintech platforms can act as bridges between informality and formal inclusion.

Digital payments generate transaction histories, allowing tax authorities to estimate incomes without intrusive audits. Governments can incentivize adoption by offering benefits—such as access to credit or social insurance—to small businesses that use digital channels. Over time, such incentives can gradually formalize large segments of the economy, creating a virtuous cycle of transparency, compliance, and economic empowerment.

Opportunities for Better Public Financial Management

The impact of fintech extends beyond tax collection to the broader realm of fiscal management. With real-time payment tracking and data analytics, treasury departments can better manage cash flows, forecast revenues, and reduce borrowing costs. Smart contracts—a blockchain feature—can automate disbursements, ensuring that public funds are released only when pre-defined conditions are met.

This could revolutionize procurement and grant management. For example, governments could use smart contracts to monitor infrastructure spending, automatically verifying milestones through satellite data before releasing payments. The result: fewer delays, less corruption, and better value for taxpayers’ money.

Risks and Ethical Dilemmas

Despite the promise, fintech adoption in tax administration is not without risks. The heavy reliance on digital infrastructure makes governments vulnerable to cyberattacks. A data breach in a national tax database could compromise millions of citizens’ financial identities. Therefore, robust cybersecurity protocols and data encryption standards are essential.

Privacy concerns also loom large. As governments gain access to vast troves of financial data through fintech platforms, questions arise about how this information will be used. Striking a balance between data-driven governance and individual privacy rights will be a defining challenge.

Furthermore, automation can create unintended biases. AI algorithms trained on historical data may inadvertently replicate systemic inequities, flagging certain groups for audits disproportionately. Governments must ensure algorithmic transparency and ethical oversight to prevent digital discrimination.

Collaboration: The Way Forward

To harness the full potential of fintech, governments must collaborate across sectors. Partnerships between tax authorities, fintech startups, and traditional banks can create hybrid systems that combine innovation with institutional trust. Regulatory sandboxes—controlled environments where new technologies can be tested—offer a promising way to experiment safely.

International cooperation will also be crucial. The digital economy transcends borders, and so must the tax systems that govern it. Multilateral frameworks like the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS) are already exploring digital tax models, but fintech could accelerate harmonization by providing the technological backbone for cross-border data sharing and verification.

From Revenue Collection to Economic Insight

Fintech’s most profound contribution may lie not in revenue collection itself but in the insights it generates. Real-time transaction data can reveal consumption patterns, investment trends, and income distribution with unprecedented granularity. For policymakers, this transforms taxation from a backward-looking exercise into a forward-looking economic management tool.

In the long run, the integration of fintech into public finance could enable more progressive, evidence-based taxation systems—ones that respond dynamically to economic conditions and promote inclusive growth. Governments could even design real-time fiscal feedback loops, adjusting tax rates automatically to stabilize demand or incentivize green investments.

Fintech innovations are redefining not only how individuals and firms interact with money but also how governments govern. Tax systems, once symbols of bureaucracy and opacity, are becoming smarter, faster, and more transparent. If implemented wisely, fintech could mark the transition from the traditional fiscal state to the digital fiscal state—one that collects taxes efficiently, allocates resources responsibly, and earns citizens’ trust through transparency.

However, technology is not a panacea. Its success will depend on governance, ethics, and inclusivity. The ultimate test of fintech in public finance will be whether it can create a fairer and more sustainable fiscal future—one where innovation serves not just efficiency, but equity.

Ramil Abbasov is a climate change and sustainability expert with over 14 years of experience in public finance management, climate finance, greenhouse gas emissions accounting, policy research, and economic analysis. He has worked closely with international organizations—including the United Nations Development Programme and the Asian Development Bank—to integrate climate risk assessments and mitigation strategies into financial governance frameworks.

Currently, Ramil serves as a Research Assistant at George Mason University, contributing to the NSF-funded Community-Responsive Electrified and Adaptive Transit Ecosystem (CREATE) project through quantitative data analysis and stakeholder engagement initiatives. Previously, he held key roles at the Asian Development Bank in Baku, Azerbaijan, where he excelled as both the National Green Budget Economy Expert and the National Public Finance Management Expert, driving efforts in climate budget tagging, green economy analysis, and sustainable development policy integration.

In addition to his work with multilateral institutions, Ramil is the CEO and Founder of “Spektr” Center for Research and Development, a research organization focused on advancing climate finance, energy transition, and sustainable economic policies. His earlier career includes leadership positions such as Director at ZE-Tronics CJSC and managerial roles in the banking sector with AccessBank CJSC and retail management with Third Eye Communications in the USA.