Mr. Speaker, with regard to parts (a) and (b), as a first step in its work on the tax gap, the CRA published on June 30, 2016, an estimate of the GST/HST gap as well as a conceptual study on tax gap estimation that explained the benefits and the limitations of the concept. The CRA is committed to ongoing work and analysis on the various components of the gap. Like most tax administrations worldwide, the CRA does not estimate an overall tax gap covering all taxes. Some tax administrations estimate components of the tax gap where there is available data. For example, tax gap estimates of value-added taxes, such as the GST/HST, are the most common.
As part of the CRA’s ongoing work on the tax gap, it has committed to publishing a series of additional papers on other aspects of the tax gap over the next two to three years. Some of these papers will contain estimates of particular components of the tax gap, while others will be more theoretical in nature. The next paper will be published this spring.
This is consistent with the government’s response to the sixth report of the Standing Committee on Finance, “Canada Revenue Agency`s Efforts to Combat Tax Avoidance and Evasion”, recommendation 7, tabled in Parliament on February 22, 2017.
With regard to part (c), with respect to requests to provide the parliamentary budget officer, the PBO, with data to estimate the tax gap, expert legal advice confirmed that provisions contained in both section 241 of the Income Tax Act and section 295 of the Excise Tax Act prevent the CRA from releasing taxpayer information that could directly or indirectly lead to the identification of specific taxpayers. The CRA had offered to provide aggregate anonymized data, maintaining that this would allow the PBO to undertake research and provide independent analysis while enabling the CRA to safeguard confidentiality of tax information, as required by the provisions noted above. This alternative was declined. As the CRA continues its work on the tax gap, it looks forward to continued collaboration with all parties involved and acknowledges the work accomplished thus far by all stakeholders.
With regard to part (d), the experience of countries that estimate their tax gaps does not support targeting specific tax gap reductions in specific years, as many factors other than compliance activities can influence the level of the tax gap, such as economic cycles and policy changes. For example, during an economic downturn, more individuals may not be able to pay all of their taxes on time.
That said, many of the CRA’s compliance efforts are expected to help reduce the tax gap in the medium term. The revenue impact from audit grew from $8.6 billion in 2012-13 to $12.8 billion in 2015 16. Integrity measures announced in budget 2016 are expected to increase tax revenues by more than $1.2 billion over five years, starting in 2016–17. In addition, budget 2016 announced investments for the CRA to enhance its efforts to crack down on tax evasion and combat tax avoidance, including hiring additional auditors and developing robust business intelligence infrastructure, goals, and targets associated with audit investment. The hiring of additional auditors and specialists who will help detect, pursue, and deliver sanctions to those who avoid paying the tax they owe will increase the number of examinations focused on high-risk individual taxpayers from 600 to 3000 a year within five years, and on high-risk multinational corporations. The CRA plans to expand its review of electronic funds transfers in 2017 by reviewing over 100,000 transactions for four additional jurisdictions of concern. The expected revenue impact of these and other measures is $2.6 billion over five years.
Budget 2016 also announced funding for the CRA to improve its ability to collect outstanding tax debts. The agency has committed to collecting an additional $7.4 billion over a five-year period.
As well, the CRA continues to implement a strategy for small and medium-sized enterprises that includes the liaison officer initiative, industry campaign approach, and office audit letter campaign, which provide assistance and information to taxpayers on how to be compliant and avoid potential tax pitfalls.
CRA interventions, which focus on areas of higher risk and target the underground economy, will continue to benefit from the use of business intelligence and data mining capabilities designed to better predict taxpayer behaviour.