1. Tax Gap Analysis Presentation to GNPBO Conference June 2016 1
Detail our efforts to do this type of work…with some, limited success..
Presentation to GNPBO Conference
June 2016 1

2. Why Does It Matter for a PBO?
All revenue forecasts (including those of the PBO) will implicitly assume a “gap”
Fiscal Transparency
Assessing the likelihood of hitting revenue targets from compliance measures to close the “gap”
Fiscal Policy
Ensuring legislators can scrutinize and challenge administrative proposals from the executive
Parliamentary Accountability
Within the PBO (or any IFI)
Budgeting really is about costing aspect. 1

3. Do you incorporate this in your revenue forecast, yes no maybe
Do you incorporate this in your revenue forecast, yes no maybe? How would you determine whether to include it or not?
Big number, but needs to be placed in appropriate context of how much money is available to be recouped “art of the possible”. 2

4. Comparables Three Approaches Micro (Bottom-up) Macro (Top-Down)
Look at measurements from other jurisdictions and scale for size of the economy
Comparables
Build a granular model based on random sampling to assess who isn’t paying
Micro (Bottom-up)
Compare actual audited revenues to applicable tax base in system of national economic accounts
Macro (Top-Down)
Within the PBO (or any IFI)
Budgeting really is about costing aspect. 3

5. Approach #1: Comparables
Published reports from other jurisdictions
OECD Reports that about 20 countries now publish gap estimates for at least one revenue base
Data Sources
Easy to prepare and communicate
Advantages
Wide range of tax systems, methodologies and quality of numbers
Problems
Within the PBO (or any IFI)
Budgeting really is about costing aspect. 4

6. Data Sources Approach #2: Micro Advantages Problems
Tax administration data from local jurisdiction
Filings, audits, assessments, re-assessments, legal proceedings..
Data Sources
Able to identify details of local tax system (taxes, taxpayers)
The actual data is always the best
Advantages
Confidentiality
Data structure (randomised audits)
Problems
Tax authorities unlikely to give access to data
The data structure is also an important consideration. To assess who isn’t paying, you want a randomised sample, which currently doesn’t exist in Canada – audits are guided in the direction of deemed “high risk” areas. 5

7. Data Sources Approach #3: Macro Advantages Problems
Aggregate tax revenues reported in audited public accounts
Economic tax base data from national statistical agency
Data Sources
Data are public and usually freely accessible
Advantages
Hard to segregate taxpayers in each tax base (individuals, corporations, multi-nationals)
Assumptions required for inter-temporal consumption.
Problems
Tax authorities unlikely to give access to data
The data structure is also an important consideration. To assess who isn’t paying, you want a randomised sample, which currently doesn’t exist in Canada – audits are guided in the direction of deemed “high risk” areas. 6

8. Bottom Lines “Tax Gap” estimation can be a complex undertaking
Compared to other types of PBO analysis, good data are harder to access
Understanding linkage between tax administration and revenue projections essential 7