Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

126. To ask the Minister for Finance if he will bring forward annual estimates of the tax gap, as is done in many other jurisdictions; and if he will make a statement on the matter. [5157/25]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The concept of the “Tax Gap” refers to attempts to measure the difference between actual tax collection and the theoretical amount of tax that might be collected in respect of any given taxhead if the headline rates of tax were applied without exceptions or reliefs and all taxpayers returned and paid tax on all relevant taxable activity.

The concept may be broken down into the “policy gap”, reflecting non-taxation arising from tax reliefs or reduced rates of taxation and the “compliance gap” which attempts to measure the amount of tax lost through either incorrect reporting of taxable activity or failure to pay taxes due. The latter category includes tax not collected as a result of insolvencies and bankruptcies as well as shadow economy activity and other forms of non-compliant behaviour.

I am advised by Revenue that it does not estimate a tax gap for the Irish taxation system, and as such I do not intend to bring forward annual estimates of same. I am advised that Revenue has concerns regarding the existing methodologies and their estimates, which are inherently uncertain and subject to revision. In fact, Revenue has noted to me that there is no agreed consensus on a reliable approach to estimating the tax gap among EU or OECD members.

Revenue has also advised that it continues to support advancements in tax gap methodologies. Since 2009, the European Commission has been producing estimates of the VAT gap for Member States and Revenue has worked closely with the Commission to assist in refining their methodology. Revenue is also participating in projects led by the OECD and the EU, trying to develop reliable methodologies for the estimation of tax gaps.

While Revenue does not estimate a tax gap, it does undertake analysis of potential tax losses associated with specific activities or sectors of the economy where compliance issues are identified. For example, Revenue has undertaken analyses on the tobacco trade, deposit interest retention tax receipts, and compliance within the construction sector. Revenue believes that this targeted approach allows it to address compliance and tax loss issues more effectively.