The Hidden Economy, Tax Evasion and the Tax GAP

Abstract

How big is the gap between the amount of tax that is currently collected and the amount that is theoretically collectable under existing law? The total tax gap is the estimated value of tax evasion and potentially preventable tax avoidance by firms and individuals. The estimates for the tax gap used in this report include tax evasion only. When the tax gap is calculated based on existing law, it is a static estimate of potentially recoverable tax revenue. A dynamic estimate of the tax gap is obtained where the impact of micro and macro changes in taxpayer behaviour due to current and anticipated tax policy changes are included in the analysis.