About
Tax Gap Toolkit

The toolkit estimates the difference between the potential tax revenue and the actual tax revenue collected, providing revenue authorities and policymakers with a measure of the amount of tax revenues lost or forgone due to non-compliance. Conducting a tax gap estimation enables authorities to inform better allocation of limited resources and develop strategies to combat or reduce significant tax gaps and improve tax collection.

The toolkit is designed to be adaptable to various national contexts, making it a valuable resource for Global South countries aiming to improve their tax systems. It leverages already collected tax administrative information and uses cutting-edge machine learnings techniques to provide a standardized framework for estimating tax gaps. This toolkit includes Stata code, readme files and a Technical Note to guide users through the estimation process.

Access Tax Gap Toolkit (Readme Part 1)  

Key Features

Bottom-Up Methodology: The toolkit employs a bottom-up approach, focusing on detailed data from tax returns and audits to estimate tax gaps in detail.

Comprehensive Data Cleaning: The toolkit includes robust procedures for cleaning and harmonizing tax return and audit data, ensuring consistency and reliability in the analysis.

Machine Learning Integration: Advanced machine learning algorithms are used to predict tax misreporting and non-compliance, enhancing the estimation of the tax gap.

Granular Insights: By leveraging detailed data, the toolkit offers insights into tax compliance at disaggregated levels , enabling targeted interventions and policy adjustments.

Future enhancements of the toolkit may include the integration of more components of the compliance gap, expansion to other programming languages, and further customization to fit different national contexts. These improvements aim to provide even more accurate and actionable insights for tax authorities worldwide.

Background

Mobilizing domestic revenue is crucial for supporting economic growth, reducing inequalities, and providing essential public services, and efficient tax systems are essential for achieving this goal. Tax gap analysis is a critical component of this effort.  

The Tax Gap toolkit is a global public good developed in partnership with the Addis Tax Initiative, to support the realization of the ATI Declaration 2025. The Declaration points out that the toolkit “will enhance the effectiveness of partner countries’ revenue administrations in curbing non-compliant behaviour by strengthening their capacities and capabilities, including risk management frameworks.”  

This builds on UNU-WIDER research in Zambia and Tanzania under the Domestic Revenue Mobilization programme to develop the toolkit.  

Partners

The Tax Gap toolkit was developed with support from the International Tax Compact (ITC), which facilitates the Secretariat of the ATI. The ITC is funded by the German Federal Ministry of Economic Cooperation and Development, co-funded by the European Union, and implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.

This work is part of UNU-WIDER’s Domestic Revenue Mobilization programme, which is funded by Norad – The Norwegian Agency for Development Cooperation.