Estimating the Corporate Income Tax Gap: The RA-GAP Methodology

Technical Notes and Manuals, September 12, 2018

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The IMF Fiscal Affairs Department's Revenue Administration Gap Analysis Program (RA-GAP) provides a quantitative analysis of the tax gap between potential revenues and actual collections.
This Technical Guidance Note explains the concept of the tax gap for corporate income tax (CIT) and the methodology to estimate CIT gaps.
The methodology is designed for initial evaluations of overall CIT noncompliance in a country using available data without additional costs of collection.

Derive the potential CIT base and potential CIT liability.
Carefully consider theoretical differences between the coverage of statistical macroeconomic data and the actual tax base of CIT.
Compare the estimated potential CIT liability and base with actual declarations and revenues to estimate the CIT gap.
The approach uses available macroeconomic and fiscal data and detailed step-by-step procedures to translate statistical aggregates into an estimate of taxable income and liability.

Advantages:
- Uses available data without additional costs of data collection.
- Suits initial evaluations of overall CIT noncompliance in a country.
Limitations:
- Estimated gaps following the approach will have margins of errors.