Personal Income Tax (PIT) and social security contributions (SSC) are the core source of government revenue in all EU Member States. In 2020, PIT and SSC contributions across Member States ranged from 49 to 75 percent and accounted in total for approximately 67 percent of total receipts from taxes and social contributions in the EU-27. To meet the fiscal objectives of PIT and achieve fairness of the PIT and SSC system, it is important to minimise the impact of non-compliance or, in other words, seal the tax and contributions gap. The gap is the difference between the theoretically collectible revenue in accordance with the law and the value that is actually collected. This difference, denoted often both in nominal terms and in relation to the total liability, accounts for the overall non-compliance.
The study aims to provide support in harmonising and streamlining the various approaches currently used in Member States when estimating tax gaps. The purpose of the study is:
- to review the tax gap methodologies available for PIT/SSC gap,
- to recommend a common method for the estimation of PIT/SSC gaps, that could be implemented in all EU Member States’ tax administrations,
- to use the identified method to calculate the gap for the EU Member States over a number of years.
The scope of the study is the assessment of methods currently used by tax authorities within the EU and a selected number of tax authorities outside of the EU and international organisations to calculate PIT/SSC gaps. The study will identify a common method to be applied across all Member States and which ensure reliable tax gap estimates whilst addressing the characteristics of Member States’ tax administrations. The study will also include a recommendation of the requisite method from the set of methods analysed by the contractor. Phase 2 of the project should then involve the calculation of the PIT/SSC gap for EU Member States.
Client: European Commission (DG Taxud)
Lead partner: CASE
Partners: Austrian Institute of Economic Research (WIFO), PricewaterhouseCoopers (PwC), and the ifo Institut (ifo)