Regulatory compliance, case selection and coverage— calculating compliance gaps

摘要

This paper initially considers the significant difficulties and costs associated with reliably and robustly estimating tax gaps. It then outlines an innovative ‘bottom-up’ method for regulatory agencies to (1) evaluate the effectiveness of case selection for compliance activities and (2) to estimate possible gross and net compliance gaps. The approach may provide an alternate or supplementary means of estimating the tax gap, for some areas, without the need for an extensive (and expensive) random audit program.The methodology approaches the issue of compliance case selection as a detection / discovery activity for perceived non-compliant behaviours and applies the Receiver Operating Characteristic (ROC) approach to the problem. Using relatively simple probabilities, important understandings regarding optimal coverage, expected ‘strike’ rates, and (via Bayesian ‘triangulation’), insights into the initial and residual compliance gaps are derived.The approach is used to calculate a plausible view of the gross and net assessed income tax gap for the Large Market in Australia; the 1,400 corporate groups with a turnover of more than $A250 million per annum in Australia. Finally the approach is used to support an analysis of possible causal factors for recent changes in strike rates in the Large Market.