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Corporate Income Tax Gap Estimation In The Context Of Development Of Fiscal Space

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  • Nataliia FROLOVA

Abstract

The article is devoted to the analysis of the corporate income tax gap as one of the indicators that characterizes the tax revenues that a country can accumulate accounting for its economic potential. The author summarizes the main theoretical views on the causes of the tax gap and investigates existing methodological approaches to assess the tax gap on corporate income tax in OECD countries. The article estimates the income tax gap under the OECD Revenue Administration - Gap Analysis Program, which is based on determining potential tax revenues by adjusting the aggregate indicators of the system of national accounts (gross output, mixed income), which, according to the analysis, averaged at 1.4% GDP in the period 2017-2019, which shows a potential for the development of the fiscal space of Ukraine. Upon analysis of the distribution of the tax gap between institutional sectors of the economy, the largest gap in income tax was found in the sector of foreign corporations whose potential tax revenues were estimated as tripled relative to the declared tax revenues accrued in the Consolidated Budget of Ukraine in 2018. The author conducted a comprehensive analysis of the effectiveness of corporate income tax in Ukraine on the basis of tax efforts and budget efficiency ratios, which revealed significant weaknesses in comparison with similar indicators in other countries. The main measures aimed at eliminating tax gaps in OECD countries are summed up and recommendations are made for Ukraine.

Suggested Citation

  • Nataliia FROLOVA, 2021. "Corporate Income Tax Gap Estimation In The Context Of Development Of Fiscal Space," Economy and Forecasting, Valeriy Heyets, issue 4, pages 125-141.
    • Handle: RePEc:eip:journl:y:2021:i:3:p:125-141
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    File URL: http://eip.org.ua/docs/EP_21_4_125_uk.pdf
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    References listed on IDEAS

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    1. Khwaja, Munawer Sultan & Iyer, Indira, 2014. "Revenue potential, tax space, and tax gap : a comparative analysis," Policy Research Working Paper Series 6868, The World Bank.
    2. Ada Jansen & Winile Ngobeni & Alexius Sithole & Wynnona Steyn, 2020. "The corporate income tax gap in South Africa: A top-down approach," WIDER Working Paper Series wp-2020-40, World Institute for Development Economic Research (UNU-WIDER).
    3. Junji Ueda, 2018. "Estimating the Corporate Income Tax Gap; The RA-GAP Methodology," IMF Technical Notes and Manuals 2018/002, International Monetary Fund.
    4. FISCALIS Tax Gap Project Group, 2018. "The concept of tax gaps - Corporate Income Tax Gap Estimation Methodologies," Taxation Papers 73, Directorate General Taxation and Customs Union, European Commission.
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