- The Reverse Method (RM) is a new, cost-effective, indirect technique for monitoring global VAT compliance gaps using publicly available data, enabling annual, cross-country, and time-series comparisons.
- RM estimates compliance gaps by reversing the C-efficiency identity, using proxies for policy gaps (tax expenditures and non-taxable items), and is calibrated against RA-GAP data from 43 countries.
- Global VAT compliance gaps (2010–2023) average 2.2–3.1% of GDP, highest in low-income developing countries (~40% of potential revenue), with gradual improvement in most regions except the Middle East/Central Asia.
- Limitations include reliance on proxy data, calibration constraints, and unsuitability for precise country-level policy; RM is best for global monitoring and trend analysis.
- RM advances fiscal monitoring by making VAT compliance gap estimates more accessible and recommends further calibration, standardized reporting, and expanded data coverage.
Source: imf.org
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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