This paper examines how the rapid expansion of the digital economy is reshaping the tax landscape of low- and lower-middle-income
countries. Combining new firm-level data from 23 developing countries with case studies of platform taxation, cross-border cloud
services, and crypto-asset adoption, we show that digitalization is eroding traditional tax bases faster than it is creating traceable new
ones. While global digital giants now capture a growing share of consumer surplus, the taxable profits formally booked in poor
countries remain below 3 % of their sales. At the same time, domestic micro- and small enterprises are migrating to online
marketplaces where information trails are fragmented and tax morale is low. We estimate that the net revenue loss from these shifts
already equals 0.4–0.7 % of GDP in the median low-income country—two to three times the annual budget of their health ministries.
To reverse this trajectory, the paper proposes a three-pillar reform agenda tailored to administrative realities in poor countries: (i) low-
cost digital withholding regimes that leverage mobile-money rails and platform remittance obligations; (ii) regionally coordinated
minimum taxes on outbound digital services, designed to be compatible with both the OECD Pillar One blueprint and the African Tax
Administration Forum (ATAF) Model Legislation; and (iii) rapid-deployment e-invoicing and third-party reporting protocols that exploit
the near-universal penetration of smartphones and national IDs. Simulations suggest that these measures could raise additional
revenues of 0.8 % of GDP within five years without increasing statutory tax rates on labour or traditional capital.
The paper concludes by outlining a governance compact in which donor agencies, regional tax organisations, and global platforms
share the fixed costs of these new systems, while local tax authorities retain control over audit selection and dispute resolution. By
embedding simplicity, interoperability, and political legitimacy at the design stage, poor countries can convert the digital transition
from a fiscal threat into a durable source of inclusive tax capacity.