What is the tax gap?

What is the tax gap?

• A. the gap between the tax theoretically collected and the amount collected
• B. The rate of tax
• C. The tax base
• D. Compliance costs

Answer: (A)

The tax gap is the difference between what should be collected under the tax rules (the tax that would be due in theory) and what is actually collected by the tax authority. It captures shortfalls from non-compliance, under-reporting, avoidance, errors, and enforcement limitations, showing how much revenue is at risk. The other ideas describe different things: the rate of tax is how much tax is charged on the base, the tax base is the amount or person that can be taxed, and compliance costs are the costs taxpayers incur to comply with tax rules, not the revenue shortfall.

The tax gap is the difference between what should be collected under the tax rules (the tax that would be due in theory) and what is actually collected by the tax authority. It captures shortfalls from non-compliance, under-reporting, avoidance, errors, and enforcement limitations, showing how much revenue is at risk. The other ideas describe different things: the rate of tax is how much tax is charged on the base, the tax base is the amount or person that can be taxed, and compliance costs are the costs taxpayers incur to comply with tax rules, not the revenue shortfall.