Estimating Tax Gap is Everything to an Informed Response to the Digital Era

Abstract

Measuring tax gap highlights ‘everything’ an expanding digital era might mean for tax – and not just tax noncompliance. Since tax gap measures the difference between the theoretical tax liability and actual revenue collected, its measurement transparently links tax policy design, revenue administration performance and taxpayer behaviour to the broader questions of economic growth, fiscal sustainability and fiscal effort and capacity. It also asks fundamental questions about data and its integrity as reported by the revenue administration, the official statistician and business and individual taxpayers. What tax gap estimates can therefore do is bring transparency and understanding to otherwise complex issues arising from the digital era and therein facilitate an informed evidence-based response to its impact through changes to tax policy design, legislation and administration.

Keywords: tax gap, digital era, revenue administration, tax policy

JEL Classification: H24, H25, H26