## EXECUTIVE SUMMARY

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---

### Methodology
- Period covered: 2008–14.
- RA-GAP methodology components:
  - Estimate the potential VAT collections for a given period.
  - Determine the accrued VAT collections for that period.
- VAT gap = potential VAT collections − accrued VAT collections.
- Top-down approach: estimate potential VAT base from statistical data on value-added by sector; construct accrued VAT collections from tax record data (accrual measurement).
- Primary focus: estimate the compliance gap — the difference between the potential VAT given the current policy framework and actual accrued VAT collections.
- Also provides estimates for other tax gap measures derived from alternative potential-VAT methods and compares these with the compliance gap.

### Main findings
- Compliance gap (Finland, 2008–2014):
  - Has been low, below ten percent of the estimated potential.
  - Is less than one percent of GDP.
- Time path:
  - The gap fell from around 0.7 percent of GDP in 2008 to less than half a percent in 2012, indicating high levels of compliance and improvement over the period.

### Sector distribution of the compliance gap
- Distributed across multiple sectors with no single point of strong concentration.
- Sectors with consistently highest relative noncompliance:
  - Construction sector (F).
  - Professional services sector (M-N).
- Trade sector (G-H) shows some similar-magnitude values likely due to allocation issues and offset by negative gap in manufacturing sector (C), which displays an almost perfect negative correlation.
- Improvements in compliance between 2008 and 2010 primarily from:
  - Agriculture, fishing, forestry, extractive sector (A-B).
  - Finance, insurance, real estate sector (K-L).

### Policy gap and its evolution
- While compliance gap decreased from 2008–10, the policy gap increased.
- Policy gap change reflects both policy changes and consumer behavior shifts.
- Policy changes contributing significantly to policy gap growth between 2009 and 2012:
  - Reduction in the reduced rate (large reduction in November 2009).
  - Application of the reduced rate to restaurants and catering services (moved in 2010).
- Ongoing growth due to reductions in the proportion of supplies at the standard rate in final consumption (increased proportion of reduced-rate or exempt consumption).

### Comparison to other estimates
- RA-GAP compliance gap results are consistent with other estimates, notably EC-commissioned CASE results.
- Differences in timing and magnitude with CASE estimates exist but are within a relatively narrow band (around a quarter point of GDP).

### Observations and recommendations
- VERO has advanced analytical capability; continue and expand tax gap analysis.
- Data quality and coverage for VERO are excellent and enable analytical risk management.
- Recommendation: VERO should publish its tax gap analysis and estimates of tax gaps in Finland.

### Abbreviations and selected glossary definitions
- Abbreviations (selected): CASE; EC; Eurostat; EUR; FAD; RA-GAP; VERO; TA; TAXUD; VAT; WEO.
- Selected glossary:
  - Assessment Gap: difference between potential collections given current policy framework and VAT declared or assessed (component of compliance gap).
  - Collections Gap: difference between VAT declared or assessed and actual VAT revenue collected (component of compliance gap).
  - Compliance Gap: difference between potential VAT given current policy framework and actual VAT revenue.
  - Policy Gap: difference between potential VAT if all final consumption were taxed at current standard rate and potential VAT given the current policy framework.
  - Efficiency Gap / Expenditure Gap / Overall VAT Gap: definitions and decompositions used in RA-GAP.

---

### C-efficiency and VAT-gap measurement (RA-GAP results and interpretation)

### C-efficiency overview
- C-efficiency definition: ratio of VAT collections to final consumption, divided by the main VAT rate; controls for VAT standard rates and partially for GDP composition.
- Finland’s c-efficiency: around the average for Europe and among higher-performing countries (overall average skewed by Luxembourg).
- Limitations: captures combined impacts of compliance, policy, and tax-base changes; similar c-efficiency values can mask different underlying causes (e.g., many exemptions with high compliance vs few exemptions with low compliance).

### VAT gap estimation (RA-GAP approach for 2008–2014)
- Potential VAT: estimated using detailed national accounts data from Statistics Finland to derive potential VAT base.
- Actual collections: RA-GAP accrued net VAT—VAT payments accrued to the tax periods for which they were paid less accrued excess credit for each taxpayer and period, aggregated by sector.
- Accruals measured as of February 2015.

### The Compliance Gap (definition and findings)
- Compliance gap = potential VAT (current policy) − actual VAT revenue; measures revenue administration performance.
- Estimates have error margins comparable to underlying statistics; better for assessing trends than absolute levels.
- Findings:
  - “The estimated compliance gap has been relatively low since 2008.”
  - Values indicate a very small compliance gap with some improvements since 2008.
  - Rate increases on “2010 (July 1)” and “2013 (January 1)” slightly increased the compliance gap temporarily; gap fell back quickly after the 2010 increase.
- Compliance gap can be decomposed into assessment gap and collection gap.

### Assessment gap and collection gap (definitions and findings)
- Assessment gap: estimated VAT that should have been declared − VAT declared or assessed (the “unknown portion”).
- Collections gap: VAT declared or assessed − VAT actually paid (the “known portion”; outstanding debt).
- Findings:
  - “The assessment gap makes up the bulk of the compliance gap.”
  - Collection gap is small relative to actual collections but significant within the overall compliance gap; collecting outstanding debt could have notable impact.
  - Changes to VERO’s collections accounting mean apparent collection gap changes over 2008–2014 cannot be directly attributed to specific debt-management changes.
  - Collections gap may overstate recoverable amounts because it does not account for uncollectible arrears (e.g., bankrupt businesses).

### Policy gap, efficiency gap, and expenditure gap (definitions and findings)
- Policy gap: potential VAT if all final consumption taxed at current standard rate − potential VAT given current policy.
- Expenditure gap: component of policy gap due to tax expenditure decisions.
- Efficiency gap: portion of policy gap from standard exemptions necessary for pragmatic design (e.g., financial services exemption, public sector, housing imputed rents).
- Findings:
  - “The efficiency gap makes up the bulk of the policy gap.”
  - Since 2010, movements in policy gap driven more by efficiency gap than expenditure gap.
  - 2009–2010 policy changes produced initial policy-gap increases; subsequent increases driven by shifts to higher proportions of exempt activity.
  - Efficiency gap constitutes most of the overall VAT gap; expenditure gap is the mobilizable portion.

### Overall VAT gap (definition and findings)
- Overall VAT gap = policy gap + compliance gap (or potential VAT if all final consumption taxed at current standard rate − actual VAT revenue).
- Findings:
  - Overall VAT gap increased from 2008–10, stable over 2010–12, then increased in 2013.
  - Overall VAT gap increased from around “six percent of GDP in 2008” to around “seven percent in 2010.”
  - From 2012 to 2013 the gap increased by another percentage point of GDP.
  - Efficiency gap is the main component of the overall VAT gap.
  - As policy gap grew, assessment gap shrank, keeping the revenue-mobilization portion relatively consistent.
  - Tax gap estimates align with the observed trend in c-efficiency (inverse relationship consistent in this case).

### Components affecting c-efficiency (year-over-year contributors)
- Components: cash effect; compliance gap effect; expenditure gap effect; efficiency gap effect.
- Findings:
  - Between 2008 and 2010, large positive and negative factors affected c-efficiency with negatives dominating.
  - In 2009 the cash effect was the largest contributor to declining c-efficiency.
  - Finland moved from excess credit carry-forward to a pure refund system in 2010, reducing cash-effect prominence thereafter.

### Measurement of actual VAT (accrual vs cash)
- RA-GAP uses accrual measurement: associate tax with relevant tax period rather than payment period to match declared economic activity with statistical data.
- Long-run: cash averages out with accruals; short-run: cash more volatile.
- In Finland, accrual and cash performance differences are not large, but can matter for compliance-gap measurement.
- Drivers of accrual vs cash differences: timing of debt collections, timing of refund payments, excess credit carry-forward use, economic cycles, inflation.
- Accruals in report measured as of February 2015; lag implies remaining late collections are likely marginal.

---

### Key quantitative findings (selected exact figures from tables)

- Value-Added Tax Revenues (VAT Revenue in EUR billions; VAT to GDP in percent of GDP):
  - 2008 — 15.658 — 8.1
  - 2011 — 17.315 — 8.8
  - 2014 — 18.855 — 9.2

- C-Efficiency ratios (Finland / Average for Europe):
  - 2008 — 0.58 — 0.59
  - 2010 — 0.55 — 0.56
  - 2014 — 0.54 — 0.54

- Average C-Efficiency for Europe (2000–13), selected:
  - Luxembourg — 0.93
  - Finland — 0.58
  - Overall average — 0.57
  - Italy — 0.41

- Value-Added Tax Compliance Gap (percent of potential; percent of GDP):
  - 2008 — 10 — 0.8
  - 2010 — 5 — 0.4
  - 2014 — 5 — 0.5

- Assessment and Collection Gap (In percent of GDP):
  - 2008 — Actual VAT 7.8 — Collection Gap 0.3 — Assessment Gap 0.5
  - 2010 — Actual VAT 8.3 — Collection Gap 0.1 — Assessment Gap 0.3
  - 2014 — Actual VAT 9.5 — Collection Gap 0.2 — Assessment Gap 0.3

- Policy Gap vs Compliance Gap (In percent of GDP):
  - 2008 — Policy Gap 5.4 — Compliance Gap 0.8
  - 2010 — Policy Gap 6.7 — Compliance Gap 0.4
  - 2014 — Policy Gap 7.4 — Compliance Gap 0.5

- Efficiency and Expenditure Gap (In percent of GDP; Actual VAT / Expenditure Gap / Efficiency Gap):
  - 2008 — 7.8 — 0.3 — 5.0
  - 2010 — 8.3 — 1.0 — 5.5
  - 2014 — 9.5 — 1.0 — 6.4

- Overall VAT gap / Policy Gap / Compliance Gap (In percent of GDP):
  - 2008 — 6.1 — 5.4 — 0.8
  - 2010 — 7.0 — 6.5 — 0.4
  - 2013 — 7.7 — 7.2 — 0.5

- Actual VAT and potential VAT (In percent of GDP):
  - 2008 — Potential VAT 8.6 — Actual VAT (Accruals) 7.8
  - 2011 — Potential VAT 9.4 — Actual VAT (Accruals) 8.8
  - 2014 — Potential VAT 9.7 — Actual VAT (Accruals) 9.5

- Sectoral compliance gap (In percent of GDP, selected sectors):
  - Construction — 2008: 0.4; 2014: 0.2
  - Manufacturing — 2008: 0.0; 2013: 0.4
  - Trade, transportation — 2008: -0.1; 2014: -0.1
  - Agriculture, fishing, forestry, extractive — 2008: 0.2; 2014: 0.1

- Comparison of compliance-gap estimates (In percent of GDP):
  - RA-GAP 2010 — 0.4; CASE 2013 — 1.5; CASE 2014 — 0.8; CASE 2015 — 0.6
  - RA-GAP 2013 — 0.5; CASE 2015 — 0.4

- Impact of tax-gap components on C-efficiency (percent change over previous year):
  - 2009 — Cash Effect -2.0; Compliance Gap Effect 0.9; Expenditure Gap Effect -1.6; Efficiency Gap Effect -0.5; Change in C-Efficiency -3.2
  - 2014 — Cash Effect -1.7; Compliance Gap Effect 1.6; Expenditure Gap Effect 0.0; Efficiency Gap Effect -0.7; Change in C-Efficiency -0.8

---

### Further analysis and methodological notes

### Potential and actual VAT (sectoral notes)
- Both potential and actual VAT (share of GDP) showed small but steady growth 2008–2014; actual VAT slowly catching up to potential.
- Sectoral potential VAT shows more year-over-year volatility (notably manufacturing) due to export allocation issues between manufacturing and trade sectors.
- Statistical data for potential VAT in 2013–14 is preliminary and may be revised.
- A negative potential VAT in the “Other” sector resulted from intermediate consumption values not attributed to any sector, producing input tax credits unlinked to output.

### Compliance gap by sector (drivers and data issues)
- Compliance gap fairly well distributed; slight declining concentration in construction.
- 2013 spike in manufacturing compliance gap likely modelling/allocation issue and may offset a trade-sector drop.
- VERO’s compliance campaign and reverse charge for construction services (introduced 2011) appear effectively targeted.
- Apparent gaps in utilities likely due to classification differences between national accounts and VAT reporting.
- Small negative gaps arise from modelling issues, misallocation of actual VAT (sector miscoding), or overestimation of potential taxable activity; these negative gaps are extremely small and within error margins.

### RA-GAP methodology (appendix summary)
- Top-down, sectoral supply-use/input-output based model to estimate taxable value-added (output tax + import tax − input tax credits).
- Key variables and adjustments include sector-by-commodity matrices, statutory VAT rates per commodity, proportions of registered output, and proportions of exempt output.
- Adjustments required for exports/imports to remove consumption by nonresidents and consumption abroad by nationals.
- Accrued actual collections built from customs collections, payments received allocated to tax periods, excess credits accrued, and payments offset by excess credit; methods to derive excess credit use described.
- Two standardized compliance-gap measures:
  1. Compliance gap at time of filing (values at original filing/payment deadline; isolates voluntary compliance at filing).
  2. Compliance gap at time of estimation (latest available data as of extraction date; useful to evaluate collection performance).
- Reporting practice: compliance gap as (CPV − AV) / CPV (percent of current potential) and also as percent of GDP.

---

*Source: EXECUTIVE SUMMARY, 3. FURTHER ANALYSIS OF THE COMPLIANCE GAP, 6. Finland’s c-efficiency is amongst the highest values observed for Europe, APPENDIX I and APPENDIX II — _cr1660*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Methodology
- Period covered: 2008–14.
- Two main components of the RA-GAP methodology for estimating the VAT gap:
  - Estimate the potential VAT collections for a given period.
  - Determine the accrued VAT collections for that period.
- The VAT gap is the difference between potential VAT collections and accrued VAT collections.
- The methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector, and constructs the accrued VAT collections value from tax record data.
- Primary focus: estimate the compliance gap — the difference between the potential VAT given the current policy framework and actual accrued VAT collections.
- The report also provides estimates for other tax gap measures derived from alternative methods for determining potential VAT and compares these measures with the compliance gap.

### Main findings
- The compliance gap in Finland for 2008 through 2014:
  - Has been low, below ten percent of the estimated potential.
  - Is less than one percent of GDP.
- Time path:
  - The gap fell from around 0.7 percent of GDP in 2008 to less than half a percent in 2012.
  - These values indicate high levels of compliance and an improvement in compliance over the period.

### Sector distribution of the compliance gap
- The compliance gap is distributed across a number of sectors with no particular point of strong concentration.
- Sectors that consistently show the highest levels of noncompliance, in relative terms:
  - Construction sector (F).
  - Professional services sector (M-N).
- Trade sector (G-H) has some values of similar magnitude, though this is likely an allocation issue and likely offset by the negative gap appearing for the manufacturing sector (C), which displays an almost perfect negative correlation.
- Improvements in compliance between 2008 and 2010 primarily came in:
  - Agriculture, fishing, forestry, extractive sector (A-B).
  - Finance, insurance, real estate sector (K-L).

### Policy gap and its evolution
- While the compliance gap was decreasing from 2008–10, the policy gap was increasing.
- The change in the policy gap reflects a change in both policy and consumer behavior.
- Between 2009 and 2012 policy changes that contributed significantly to growth in the policy gap:
  - Reduction in the reduced rate.
  - Application of the reduced rate to restaurants and catering services.
- Growth in the policy gap also occurred across the whole period due to reductions in the proportion of supplies at the standard rate in final consumption (with an increased proportion of consumption of reduced rate or exempt supplies).

### Comparison to other estimates
- The RA-GAP compliance gap results show consistent levels with other estimates.
- Other source: EU-wide estimates commissioned by the European Commission (EC).
- The RA-GAP results are consistent with the latest EC estimates (Center for Social and Economic Research “CASE” results).

### Observations and possible future work (recommendations)
- VERO has an advanced analytical capability, and should continue with its existing and planned tax gap analysis.
- The quality and coverage of data available to VERO is excellent, allowing them to develop a more analytical approach to risk management.
- It is recommended that VERO publish its tax gap analysis and estimates of tax gaps in Finland.

### Abbreviations and acronyms (as provided)
- CASE Center for Social and Economic Research (Poland)
- EC European Commission
- Eurostat Statistical Office of the European Communities
- EUR Euro
- FAD Fiscal Affairs Department
- RA-GAP Revenue Administration GAP Analysis Program
- VERO Finnish Customs and Tax Administration
- TA Technical assistance
- TAXUD Taxation Customs Union
- VAT Value-added tax
- WEO World Economic Outlook

### Glossary (selected definitions as provided)
- Assessment Gap: The difference between the between potential collections given the current policy framework and the VAT declared or assessed (a component of the compliance gap).
- C-efficiency: The ratio of actual VAT to potential VAT if all final consumption were taxed at the current standard rate.
- Collections Gap: The difference between VAT declared or assessed and the actual VAT revenue collected (a component of the compliance gap).
- Compliance Gap: The difference between the potential VAT given the current policy framework and actual VAT revenue.
- Efficiency Gap: The difference between the potential VAT if all final consumption were taxed at the current standard rate and the potential VAT where most of final consumption is taxed at the standard rate, but where a set of minimal standard exemptions are maintained (a component of the policy gap).
- Expenditure Gap: The difference between the potential VAT where most of final consumption is taxed at the standard rate, but where a set of minimal standard exemptions are maintained, and the potential VAT given the current policy framework (a component of the policy gap).
- Overall VAT Gap: The difference between the potential VAT if all final consumption were taxed at the current standard rate and actual VAT revenue.
- Policy Gap: The difference between the potential VAT if all final consumption were taxed at the current standard rate and the potential VAT given the current policy framework.

*Source: EXECUTIVE SUMMARY, _cr1660 - EXECUTIVE SUMMARY*

### 6. Finland’s c-efficiency is amongst the highest values observed for Europe (Figure 7).

### _cr1660 - 6. Finland’s c-efficiency is amongst the highest values observed for Europe (Figure 7).

### C-efficiency overview
- Finland’s c-efficiency rate is currently around the average for Europe, and is among the higher performing countries—“the overall average is skewed upwards due to the exaggerated performance of Luxembourg.”
- C-efficiency is defined as the ratio of VAT collections to final consumption, divided by the main VAT rate. It controls for VAT standard rates and (partially) the composition of GDP.
- Limitations of c-efficiency:
  - It captures the combined impact of changes in compliance gap, policy changes, and changes in the tax base.
  - Two countries can have similar c-efficiency values for completely different reasons (e.g., high compliance with many exemptions vs few exemptions with low compliance).
  - Final consumption in national accounts is not exactly the same as the final consumption targeted by VAT (example: hotel services provided to nonresidents treated as an export).

### VAT gap estimation (RA-GAP approach for 2008–2014)
- Potential VAT revenues estimated using detailed national accounts data published by Statistics Finland to determine the potential VAT base.
- Actual collections used the RA-GAP methodology for determining accrued net VAT—VAT payments accrued to the tax periods for which they were paid less accrued excess credit for each taxpayer for each tax period, aggregated by sector.
- The accruals values used are those as measured as of February 2015.

### The Compliance Gap
- Definition: The difference between the potential VAT given the current policy framework and actual VAT revenue; measures revenue administration performance.
- Estimates have an error margin similar to that of the underlying statistics; better for assessing trends than levels.
- Findings:
  - “The estimated compliance gap has been relatively low since 2008.”
  - Values indicate the compliance gap is very small, with some improvements since 2008.
  - Rate increases were introduced on “2010 (July 1)” and “2013 (January 1)”; in both cases the compliance gap then increased slightly, but the compliance gap quickly fell back down after the 2010 increase.
- Note: The compliance gap can be broken into the assessment gap and the collection gap.

### The Assessment Gap and the Collection Gap
- Definitions:
  - Assessment gap: difference between estimated VAT that should have been declared and the VAT which has been declared or assessed (the “unknown portion” of the compliance gap).
  - Collections gap: difference between VAT declared or assessed and the VAT actually paid (the “known portion” of the compliance gap; represents known outstanding debt).
- Findings:
  - “The assessment gap makes up the bulk of the compliance gap.”
  - The collection gap is small relative to actual collections but is a notable portion of the overall compliance gap; collecting outstanding debts could have significant impact.
  - Changes to VERO’s collections accounting system mean apparent collection gap changes over 2008–2014 cannot be attributed to particular debt management changes.
  - The collections gap may overstate recoverable amounts because it does not account for uncollectible arrears (e.g., bankrupt businesses).

### The Policy Gap
- Definition: Difference between potential VAT if all final consumption were taxed at the current standard rate and the potential VAT given the current policy framework.
- Influenced by:
  - Explicit policy structure changes.
  - Changes in composition of the tax base (shift from standard-rated to exempt or reduced rate items increases policy gap).
- Findings:
  - “The changes to the compliance gap were more than offset by changes in the policy gap.”
  - The policy gap has shown significant growth during the period.
  - Some growth due to explicit policy changes (examples: “large reduction in the reduced rate in November 2009 and moving restaurants and catering services to the reduced rate in 2010”).
  - Additional growth due to a shift towards a greater proportion of consumption of reduced rate or exempt supplies (higher proportion of final consumption provided through the public sector and/or the financial sector).

### Expenditure Gap and Efficiency Gap
- Definitions:
  - Expenditure gap: component of the policy gap due to tax expenditure decisions (difference between potential VAT with most final consumption taxed at standard rate but minimal standard exemptions maintained, and potential VAT given current policy).
  - Efficiency gap: portion of the policy gap resulting from typical VAT exemptions necessary due to pragmatic design considerations (e.g., financial services exemption, public sector treatment, housing imputed rents).
- Findings:
  - “The efficiency gap makes up the bulk of the policy gap.”
  - The expenditure/efficiency decomposition distinguishes revenue mobilization potential (expenditure gap) from structural, low-mobilization elements (efficiency gap).
  - Since 2010, movements in the policy gap have been more the result of movements in the efficiency gap than the expenditure gap.
  - The 2009 and 2010 policy changes drove an initial increase in the policy gap; subsequent increases were driven by a shift to higher proportion of exempt activity.

### The Overall VAT Gap
- Definition: Combination of the policy gap and the compliance gap; can be measured directly as the difference between potential VAT if all final consumption were taxed at current standard rate and actual VAT revenue.
- Findings:
  - “The estimated overall VAT gap for Finland increased from 2008–10, was relatively stable over the period 2010–12, and then increased again in 2013.”
  - The overall VAT gap appeared to increase from around “six percent of GDP in 2008” to around “seven percent in 2010.”
  - From 2012 to 2013 the gap appears to have increased by another percentage point of GDP.
  - The efficiency gap makes up the bulk of the overall VAT gap.
  - When grouping components by revenue mobilization potential (collections gap, assessment gap, expenditure gap) versus those without (efficiency gap), a trend emerges: as the policy gap grew, the assessment gap shrank, so that the revenue mobilization portion of the gap maintained a relatively consistent share of the overall gap.
  - The tax gap estimates are consistent with observed trend in the c-efficiency ratio for the period; in theory the c-efficiency ratio should be the inverse of the tax gap, and in this case the two measures are consistent.

### How the Components of the Tax Gap Affect C-efficiency
- Components influencing year-over-year change in c-efficiency include:
  - Cash effect (differences between cash measurement of actual VAT used in c-efficiency and accrual values used for tax gap estimates).
  - Compliance gap effect.
  - Expenditure gap effect.
  - Efficiency gap effect.
- Findings:
  - Between 2008 and 2010 both large positive and negative factors affected the c-efficiency ratio, with negative factors outweighing positives.
  - In 2009 the cash effect was the largest contributor to the declining c-efficiency ratio.
  - Variations in the cash effect tend to be highest when countries use an excess credit carry-forward system; Finland moved to a pure refund system in 2010, explaining why the cash effect loses prominence subsequently.

### Measurement of Actual VAT (Box 1)
- RA-GAP uses an accrual measurement for actual VAT—associating tax with the relevant tax period rather than payment period—to better match declared economic activity with statistical data.
- In the long run cash values should average out with accruals; in short run cash is more volatile.
- In Finland there does not appear to be significant difference between accrual and cash performance, but differences can matter for the compliance gap.
- Drivers of accrual vs cash differences: timing of debt collections, timing of refund payments, use of excess credit carry-forward mechanisms, economic cycles (pro-cyclicality), and inflation effects.
- Accruals in this report are measured as of February 2015; the lag between end-2013 and extraction date means remaining late collections are likely marginal.

*International Monetary Fund — 2015: Finland—The Value-Added Tax Gap (excerpted content).*

### 3. FURTHER ANALYSIS OF THE COMPLIANCE GAP

### 3. FURTHER ANALYSIS OF THE COMPLIANCE GAP

### A. Potential and Actual Value-Added Tax
- Findings:
  - Both potential and actual VAT, as a share of GDP, exhibited fairly small but constant growth over the period 2008–2014.
  - The compliance gap is defined as the difference between potential VAT (as estimated using the current policy framework) and accrued actual VAT collections.
  - In the period analyzed, actual VAT was slowly catching up to potential VAT.
  - Potential VAT per sector shows more year-over-year volatility than actual VAT in some sectors, notably manufacturing—attributed to allocation issues of exports between the manufacturing sector and the trade sector in the potential VAT model.
  - Statistical data used to calculate potential VAT for 2013–14 is still preliminary and subject to potential revisions.
  - A negative potential VAT in the “Other” sector resulted from statistical data that included intermediate consumption values not attributed to any sector, producing input tax credits unlinked to any output.
- Data/technical notes:
  - Export assignment in national accounts: exports of a commodity are assigned to the sector which manufactured them, not the sector which handled the exports, requiring redistribution in the model to attribute associated zero-rated output correctly.

### B. The Compliance Gap by Sector
- Findings:
  - The compliance gap is fairly well distributed across sectors, with a slight but declining concentration in the construction sector.
  - A sudden spike in the manufacturing sector compliance gap in 2013 is likely a modelling issue and may be offset by a drop in the trade sector for that period.
  - The larger compliance gap in 2008–10 appears to have come from the construction sector; persistent gaps in 2008–10 decreased sharply in 2011–14.
  - VERO’s compliance campaign in the construction sector, including the introduction of a reverse charge for construction services in 2011, appears well targeted and effective.
  - Apparent gaps in the public utilities sector (electricity, water, gas and waste removal services) are likely due to classification differences between national accounts and VAT reporting—market sales by large paper manufacturers and the peat industry are recorded as utilities in national accounts but under the companies’ main activity for VAT purposes.
  - Negative gaps may result from:
    - Modelling issues.
    - Misallocation of actual VAT (e.g., incorrect sector code in registry).
    - Overestimation of potential taxable activity.
  - Negative gaps identified:
    - Trade sector negative gap likely due to misallocation of exports from manufacturing.
    - Information and communications sector and professional services sector negative gaps likely due to misallocation of actual VAT (taxpayers registered in these sectors but engaged in another).
  - These negative gaps are extremely small and within likely margins of error for the analysis.

### C. Comparison to Other Estimates
- Findings:
  - Main other source of VAT compliance gap estimates for Finland: EC-commissioned EU-wide studies—Reckon report (2009) and CASE studies (2013, updates 2014 and 2015).
  - The Reckon report covered 2000–06 and is excluded from this comparison.
  - RA-GAP results are consistent with the latest CASE results.
  - Differences in the trend timing:
    - CASE indicates an abrupt increase in 2010 and a drop back to 2009 level.
    - RA-GAP shows a spike in 2011 instead.
  - Magnitude differences between the three estimates are within a relatively narrow band of a quarter point of GDP.
- Note:
  - The 2013 CASE result is believed by the authorities to be too high because it overstates VAT liability (e.g., imputed rents included in the VAT base); CASE 2014 revisions produce estimates closer to authorities' expectations and RA-GAP.

### D. Summary observations from section 3
- VERO’s targeted measures (notably in construction) appear to have materially reduced the sector’s compliance gap from 2011 onward.
- Classification and data allocation issues (exports, sector coding, intermediate consumption attribution) are key drivers of volatility and small negative gaps in sectoral estimates.
- Overall alignment between RA-GAP and independent CASE estimates increases confidence in the magnitude of the estimated VAT compliance gap, with remaining differences small (around a quarter point of GDP).

*Italic: Source — _cr1660 - 3. FURTHER ANALYSIS OF THE COMPLIANCE GAP*

### APPENDIX I. Data Tables for Included Figures

### APPENDIX I. Data Tables for Included Figures

### Table 2 — Data for Figure 5: Value-Added Tax Revenues
- Year / VAT Revenue (In EUR billions) / VAT to GDP (In percent of GDP)
- 2000 — 10.869 — 8.0
- 2001 — 11.118 — 7.7
- 2002 — 11.731 — 7.9
- 2003 — 12.487 — 8.2
- 2004 — 13.010 — 8.2
- 2005 — 13.748 — 8.4
- 2006 — 14.537 — 8.4
- 2007 — 15.207 — 8.2
- 2008 — 15.658 — 8.1
- 2009 — 15.176 — 8.4
- 2010 — 15.533 — 8.3
- 2011 — 17.315 — 8.8
- 2012 — 17.987 — 9.0
- 2013 — 18.763 — 9.3
- 2014 — 18.855 — 9.2

### Table 3 — Data for Figure 6: C-Efficiency Ratios for Finland and Average for Europe
- Year / Finland / Average for Europe
- 2000 — 0.61 — 0.53
- 2001 — 0.58 — 0.54
- 2002 — 0.59 — 0.54
- 2003 — 0.60 — 0.55
- 2004 — 0.60 — 0.57
- 2005 — 0.60 — 0.59
- 2006 — 0.61 — 0.60
- 2007 — 0.60 — 0.61
- 2008 — 0.58 — 0.59
- 2009 — 0.56 — 0.54
- 2010 — 0.55 — 0.56
- 2011 — 0.56 — 0.55
- 2012 — 0.56 — 0.55
- 2013 — 0.55 — 0.55
- 2014 — 0.54 — 0.54

### Table 4 — Data for Figure 7: Average C-Efficiency for Europe over the Period 2000–13
- Luxembourg — 0.93
- Croatia — 0.80
- Cyprus — 0.75
- Switzerland — 0.73
- Estonia — 0.71
- Slovenia — 0.64
- Austria — 0.61
- Latvia — 0.60
- Denmark — 0.60
- Bulgaria — 0.59
- Norway — 0.59
- Finland — 0.58
- Malta — 0.57
- Overall average — 0.57
- Albania — 0.57
- Ireland — 0.56
- Germany — 0.56
- Sweden — 0.55
- Netherlands — 0.55
- Iceland — 0.54
- Portugal — 0.52
- Czech Republic — 0.52
- Hungary — 0.52
- Lithuania — 0.51
- Slovak Republic — 0.50
- Romania — 0.50
- France — 0.50
- Spain — 0.49
- Belgium — 0.49
- United Kingdom — 0.47
- Poland — 0.45
- Greece — 0.44
- Italy — 0.41

### Table 5 — Data for Figures 1 and 8: Value-Added Tax Compliance Gap
- Year / Compliance Gap (In Percent of Potential) / Compliance Gap (In Percent of GDP)
- 2008 — 10 — 0.8
- 2009 — 8 — 0.7
- 2010 — 5 — 0.4
- 2011 — 7 — 0.6
- 2012 — 5 — 0.4
- 2013 — 5 — 0.5
- 2014 — 5 — 0.5

### Table 6 — Data for Figure 9: The Assessment and Collection Gap (In percent of GDP)
- Year / Actual VAT / Collection Gap / Assessment Gap
- 2008 — 7.8 — 0.3 — 0.5
- 2009 — 8.3 — 0.2 — 0.5
- 2010 — 8.3 — 0.1 — 0.3
- 2011 — 8.8 — 0.1 — 0.5
- 2012 — 8.9 — 0.1 — 0.3
- 2013 — 9.3 — 0.2 — 0.3
- 2014 — 9.5 — 0.2 — 0.3

### Table 7 — Data for Figure 10: The Value Added Tax Policy Gap versus Compliance Gap (In percent of GDP)
- Year / Policy Gap / Compliance Gap
- 2008 — 5.4 — 0.8
- 2009 — 6.1 — 0.7
- 2010 — 6.7 — 0.4
- 2011 — 6.5 — 0.6
- 2012 — 6.9 — 0.4
- 2013 — 7.3 — 0.5
- 2014 — 7.4 — 0.5

### Table 8 — Data for Figure 11: The Efficiency and Expenditure Gap (In percent of GDP)
- Year / Actual VAT / Expenditure Gap / Efficiency Gap
- 2008 — 7.8 — 0.3 — 5.0
- 2009 — 8.3 — 0.5 — 5.6
- 2010 — 8.3 — 1.0 — 5.5
- 2011 — 8.8 — 0.9 — 5.5
- 2012 — 8.9 — 0.9 — 5.7
- 2013 — 9.3 — 1.0 — 6.2
- 2014 — 9.5 — 1.0 — 6.4

### Table 9 — Data for Figures 3 and 12: The Tax Gap, Compliance Gap, and Policy Gap (In percent of GDP)
- Year / Overall VAT gap / Policy Gap / Compliance Gap
- 2008 — 6.1 — 5.4 — 0.8
- 2009 — 6.8 — 6.1 — 0.7
- 2010 — 7.0 — 6.5 — 0.4
- 2011 — 7.0 — 6.4 — 0.6
- 2012 — 7.1 — 6.6 — 0.4
- 2013 — 7.7 — 7.2 — 0.5

### Table 10 — Data for Figure 13: Actual Value-Added Tax and Components of the Gap (In percent of GDP)
- Year / Actual VAT / Collection Gap / Assessment Gap / Expenditure Gap / Efficiency Gap
- 2008 — 7.8 — 0.3 — 0.58 — 0.3 — 5.1
- 2009 — 8.3 — 0.2 — 0.5 — 0.5 — 5.6
- 2010 — 8.3 — 0.1 — 0.3 — 1.0 — 5.5
- 2011 — 8.8 — 0.1 — 0.5 — 0.9 — 5.5
- 2012 — 8.9 — 0.1 — 0.3 — 0.9 — 5.7
- 2013 — 9.3 — 0.2 — 0.3 — 1.0 — 6.2
- 2014 — 9.5 — 0.2 — 0.3 — 1.0 — 6.4

### Table 11 — Data for Figure 14: The Inverse of the Value-Added Tax Gap and C-efficiency Ratio (In percent of GDP)
- Year / Actual VAT / C-Efficiency Ratio
- 2008 — 56 — 0.58
- 2009 — 55 — 0.55
- 2010 — 54 — 0.54
- 2011 — 55 — 0.55
- 2012 — 55 — 0.56
- 2013 — 54 — 0.55
- 2014 — 54 — 0.54

### Table 12 — Data for Figure 15: Impact of the Tax Gap Components on C-Efficiency (In percent of change over previous year)
- Year / Cash Effect / Compliance Gap Effect / Expenditure Gap Effect / Efficiency Gap Effects / Change in C-Efficiency
- 2008 — (blank) — (blank) — (blank) — (blank) — 0.0
- 2009 — -2.0 — 0.9 — -1.6 — -0.5 — -3.2
- 2010 — -0.4 — 1.0 — -2.8 — 0.8 — -1.4
- 2011 — 0.0 — -0.3 — 0.9 — 1.1 — 1.6
- 2012 — 0.6 — 0.9 — 0.3 — -1.2 — 0.6
- 2013 — -0.5 — 0.5 — -0.5 — -0.6 — -1.2
- 2014 — -1.7 — 1.6 — 0.0 — -0.7 — -0.8

### Table 13 — Data for Figure 16: RA-GAP Accrual Measurement and Official Values for Value-Added Tax Collections (In percent of GDP)
- Year / RA-GAP Accrual / Lagged Cash (EUROSTAT)
- 2008 — 7.8 — 8.1
- 2009 — 8.3 — 8.3
- 2010 — 8.3 — 8.3
- 2011 — 8.8 — 8.7
- 2012 — 8.9 — 9.0
- 2013 — 9.3 — 9.3
- 2014 — 9.5 — 9.2

### Table 14 — Data for Figure 17: Potential and Actual Value-Added Tax (In percent of GDP)
- Year / Potential VAT (Current Policy Structure) / Actual VAT (Accruals)
- 2008 — 8.6 — 7.8
- 2009 — 9.0 — 8.3
- 2010 — 8.9 — 8.3
- 2011 — 9.4 — 8.8
- 2012 — 9.4 — 8.9
- 2013 — 9.7 — 9.3
- 2014 — 9.7 — 9.5

### Table 15 — Data for Figure 18: Potential and Actual Value-Added Tax by Sector (In percent of GDP)
- Potential VAT by sector (2008–2014)
  - Agriculture, fishing, forestry, extractive — 0.2 / 0.2 / 0.3 / 0.2 / 0.2 / 0.3 / 0.2
  - Manufacturing — 0.1 / 0.4 / 0.1 / 0.2 / 0.6 / 0.6 / 0.6
  - Utilities — 0.5 / 0.5 / 0.6 / 0.6 / 0.5 / 0.6 / 0.6
  - Construction — 1.3 / 1.3 / 1.3 / 1.1 / 1.1 / 1.1 / 1.0
  - Trade, transportation — 4.3 / 4.0 / 4.2 / 4.4 / 4.2 / 4.2 / 4.1
  - Hospitality — 0.3 / 0.3 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1
  - Information, communication — 0.5 / 0.6 / 0.6 / 0.6 / 0.7 / 0.8 / 0.8
  - Finance, insurance, real estate — 0.1 / 0.3 / 0.4 / 0.4 / 0.4 / 0.4 / 0.5
  - Professional services — 1.0 / 1.1 / 1.1 / 1.2 / 1.1 / 1.1 / 1.1
  - Public services, education, health care — 0.1 / 0.2 / 0.2 / 0.4 / 0.4 / 0.5 / 0.4
  - Personal services — 0.0 / 0.0 / 0.0 / 0.1 / 0.1 / 0.1 / 0.1
  - Other — (blank) / (blank) / 0.0 / 0.0 / 0.0 / (blank) / (blank)
- Actual VAT by sector (2008–2014)
  - Agriculture, fishing, forestry, extractive — 0.1 / 0.1 / 0.2 / 0.1 / 0.1 / 0.2 / 0.2
  - Manufacturing — 0.1 / 0.3 / 0.2 / 0.2 / 0.4 / 0.2 / 0.3
  - Utilities — 0.3 / 0.3 / 0.5 / 0.5 / 0.5 / 0.5 / 0.5
  - Construction — 1.0 / 1.0 / 1.0 / 1.0 / 0.9 / 0.9 / 0.9
  - Trade, transportation — 4.3 / 4.1 / 4.1 / 4.2 / 4.1 / 4.3 / 4.2
  - Hospitality — 0.2 / 0.2 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1
  - Information, communication — 0.7 / 0.7 / 0.7 / 0.7 / 0.8 / 0.8 / 0.8
  - Finance, insurance, real estate — 0.0 / 0.3 / 0.3 / 0.3 / 0.3 / 0.3 / 0.4
  - Professional services — 1.0 / 1.0 / 1.1 / 1.2 / 1.2 / 1.2 / 1.3
  - Public services, education, health care — 0.1 / 0.2 / 0.2 / 0.4 / 0.5 / 0.5 / 0.5
  - Personal services — 0.1 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1
  - Other — 0.0 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0

### Table 16 — Data for Figures 2 and 19: The Compliance Gap by Sector (In percent of GDP)
- Sector / 2008 / 2009 / 2010 / 2011 / 2012 / 2013 / 2014
- Agriculture, fishing, forestry, extractive — 0.2 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1
- Manufacturing — 0.0 / 0.1 / -0.1 / -0.1 / 0.1 / 0.4 / 0.2
- Utilities — 0.2 / 0.2 / 0.2 / 0.1 / 0.0 / 0.1 / 0.1
- Construction — 0.4 / 0.3 / 0.3 / 0.2 / 0.2 / 0.2 / 0.2
- Trade, transportation — -0.1 / 0.0 / 0.1 / 0.2 / 0.1 / -0.1 / -0.1
- Hospitality — 0.1 / 0.2 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
- Information, communication — -0.1 / -0.1 / -0.2 / -0.1 / -0.1 / 0.0 / 0.0
- Finance, insurance, real estate — 0.2 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1 / 0.1
- Professional services — 0.1 / 0.1 / 0.0 / 0.0 / -0.1 / -0.1 / -0.1
- Public services, education, health care — 0.0 / 0.0 / 0.0 / 0.0 / -0.1 / -0.1 / -0.1
- Personal services — 0.0 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0
- Other — 0.0 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0 / 0.0

### Table 17 — Data for Figures 4 and 20: Comparison of Compliance Gap Estimates
- Year / RA-GAP / CASE 2013 / CASE 2014 / CASE 2015
- 2008 — 0.8 — 1.5 — (blank) — (blank)
- 2009 — 0.7 — 0.9 — 0.4 — 0.3
- 2010 — 0.4 — 1.5 — 0.8 — 0.6
- 2011 — 0.6 — 1.4 — 0.5 — 0.3
- 2012 — 0.4 — (blank) — 0.5 — 0.3
- 2013 — 0.5 — (blank) — (blank) — 0.4
- 2014 — 0.5 — (blank) — (blank) — (blank)

*Data extracted from APPENDIX I. Data Tables for Included Figures*

### APPENDIX II. The Revenue Administration-Gap Analysis Program

### APPENDIX II. The Revenue Administration-Gap Analysis Program

### A. Introduction and general approach
- Purpose: RA-GAP estimates potential tax revenues from macroeconomic data and measures the compliance gap by comparing potential VAT under current tax rules with full compliance to actual VAT collections.
- Rationale for sectoral breakdown:
  - Break down revenue into economic sectors and trace trends over time to distinguish changes in potential revenue from sector-specific compliance issues.
  - Sectoral potential revenues can be matched to actual sectoral tax collections to identify drivers of the overall gap.
- Top-down approach:
  - RA-GAP estimates total compliance losses by comparing actual VAT collections to potential VAT collections estimated from statistics covering the whole VAT base.
  - Advantages: (a) should cover all compliance losses whether identified or not; (b) results comparable to costs of tax expenditures and reliefs.
  - Complementary bottom-up approach: estimating behavioral components of the compliance gap can help identify drivers of the total gap.
- Caveats and limitations:
  - Any macro-statistics approach has error margins due to modeling simplifications and shadow economy measurement challenges.
  - Top-down methods risk overestimating potential VAT when legal tax avoidance or interpretation issues reduce revenue but are technically compliant—such reductions may be counted in the compliance gap absent specific adjustments.
- Linkage of potential and actual revenue:
  - RA-GAP uses cash collection data linked to economic activity by reallocating collections to the periods in which tax due accrued (using taxpayer return and payment records) to avoid distortions from payment/refund timing lags.
  - Sectoral sorting of tax collection data allows identification of sectors with larger compliance gaps.
- Policy gap:
  - RA-GAP reports a complementary ‘policy gap’ indicator based on hypothetical tax legislation or changes in tax policies to compare the magnitude of compliance losses with potential policy-driven revenue effects.

### B. Measuring potential VAT revenues — model and variables
- Concept: Estimate taxable value-added across all sectors using supply-use (or input-output) tables to reflect VAT determination (output tax + import tax − input tax credits).
- Model structure: value-added based potential revenues model (symbolic representation in source).
- Key variables (as defined in source):
  - ܸܲ௦ = the potential net VAT for a sector
  - ܯ௖௦ = imports by sector s of commodity c
  - ܻ௖௦ = output by sector s of commodity c
  - ܺ௖௦ = exports by sector s of commodity c
  - ܰ௖௦ = intermediate demand (consumption) by sector s of commodity c
  - ܫ௖௦ = investment by sector s of commodity c
  - ߬௖ = the VAT rate that applies to commodity c (zero if zero-rated or exempt)
  - ߟ௖௦ = the proportion of input tax credits for commodity c by sector s allowed to be claimed
  - ݎ௦ = the proportion of output for a sector produced by registered businesses
  - ݁௦ = the proportion of output for a sector which is exempt output
- Data sources and determination:
  - Y, X, M, N, and I: obtain from statistical supply-use or input-output tables; external trade data X and M require adjustments (see below).
  - ߬௖: obtained from tax rate structure per commodity (special treatment for trade services described below). For hypothetical/reference tax structure, standard rate is assigned to full ߬௖ vector except supplies typically exempted internationally (margin-based financial services, life insurance, residential rents).
  - ߟ௖௦: set by statutory limitations on input tax credits; default value is 1. For reference tax structure, set to 1.
  - ݎ௦: estimated with authorities (e.g., business licensing or customs transactions data). Note: assumption that same ݎ௦ applies across Y, X, I, and N is generally not consequential.
  - ݁௦: proportion of exempt output in sector; computed as ݁௦ = ∑(ܻ௖௦′߬ൈ௖)௖ / ∑(ܻ௖௦)௖ where ′߬௖ = 1 if commodity c is exempt, 0 if taxable.
- Adjustments for X and M:
  - Exports data must be adjusted to remove domestic consumption by nonnationals.
  - Imports data must be adjusted to remove consumption abroad by nationals.
  - If supply-use tables do not separately report these categories, approximate by removing imports/exports of services typically consumed at place of supply (e.g., hotel and restaurant, local transport).
- Trade sector (retail and wholesale) rate determination:
  - Compute a weighted average statutory rate ்߬ for trade services using trade margins by commodity type:
    - ்߬ = (∑(߬௖ᇲ ܭൈ௖ᇲ)) / (∑(ܭ௖ᇲ))
    - where ߬௖ᇲ = statutory rate for commodity ܿᇱ (excluding trade services commodities), ܭ௖ᇲ = trade margins for commodity ܿᇱ.
- Accommodating complex policy structures:
  - Sector-specific tax rates: use sector-by-commodity matrix ߬௖௦ instead of commodity-only vector ߬௖ for output and input tax computations; imports still use ߬௖ vector.
  - Transaction-specific treatments:
    - Taxpayer-to-taxpayer transactions: options are (a) split commodity into components by tax treatment (requires new commodity in supply-use tables and value data), or (b) ignore (no net impact on overall gap but affects sectoral allocation).
    - Taxpayer-to-final consumer transactions: treat on data side; retail potential VAT may need reduction by external estimates of tax expenditure cost.

### C. Measuring actual collections (accrued collections)
- Principle: Reallocate cash collections into the periods when tax due actually accrued to match potential revenues timing.
- Accrued collections formula (symbolic in source):
  - ܸܣ௦ = ܥ௦ܲ + ௦ܴ  ല ܱܲ௦ (symbolic representation as in source)
- Variable definitions and data sources:
  - ܸܣ௦ = accrued VAT collections for the period
  - ܥ௦ = collections at customs in the period — obtain from customs declaration database (value of VAT on imports, date of entry, sector of taxpayer).
  - ܲ௦ = payments received for the period — obtain from payments transaction database (value of VAT payments exclusive of interest/penalties, date of payment, tax period covered, sector of taxpayer).
  - ܴ௦ = excess credit accrued for the period — obtain from tax returns database (value of excess credit, tax period, filing date, sector).
  - ܱܲ௦ = payments offset by excess credit — applies where excess credit is carried forward to offset later obligations; determined from tax return database and offset rules.
- Nuances:
  - To determine excess credit for a period it may be necessary to compute net tax owing from fundamental return line items: output tax on supplies, self-assessed VAT on imports, minus VAT on inputs (may require taxpayer-by-taxpayer recomputation).
  - Amount of excess credit used to offset tax owing often not recorded explicitly; method: if net tax owing > 0 and excess credit carried forward > 0 then excess credit used = min(net tax owing, excess credit carried forward).

### D. Measuring and reporting the compliance gap
- Definition: Compliance gap = current potential collections − actual collections (accrued collections).
- Two standardized static measures for comparability over time and across jurisdictions:
  1. Compliance gap at the time of filing:
     - Measured at the original filing/payment deadline.
     - Filter ܲ௦, ܴ௦, and ܱܲ௦ to include only payments and returns received before their deadlines.
     - Tax return data for ܴ௦ and ܱܲ௦ use the values as originally submitted by taxpayers (no subsequent assessment actions).
     - This measure does not change over time and isolates voluntary compliance at filing.
  2. Compliance gap at the time of estimation:
     - Measured using the latest available data for returns filed, assessment values, and collection/refund payments as of a chosen extraction date (ideally annual on filing/payment anniversary).
     - Filter ܲ௦ to payments made by extraction date; use current assessed values for ܴ௦ and ܱܲ௦ as of that date.
     - This value can change over time but is static for the chosen extraction date; useful to evaluate collection performance and evolution.
- Presentation and comparators:
  - RA-GAP commonly reports the compliance gap as (CPV − AV) / CPV, i.e., compliance gap as a percentage of current potential revenues.
  - Compliance gaps are also expressed as percentages of GDP to compare with economic activity and policy gap magnitudes.
  - Note: reporting raw CPV − AV can indicate the potential yield from compliance efforts for a period but may be misleading without context on achievable improvements.

*Source: APPENDIX II. The Revenue Administration-Gap Analysis Program (model and methodology) from the provided content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1660.pdf_