Charlottetown Senator Percy Downe will introduce a bill in the Senate on April 13, requiring the government to measure the tax gap.
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The federal budget has earmarked $444.4-million over five years for the Canada Revenue Agency to "enhance its efforts to crack down on tax evasion and combat tax avoidance." Let us hope that some of this money will go to the fight against overseas tax evasion, a problem that has cost the Canadian economy untold millions of dollars.
The reason the amount is "untold" is because the CRA refuses to estimate the tax gap – the difference between what the CRA is owed in taxes and what it actually collects – and therefore does not know how much is lost to overseas tax evasion.
Other countries including the United States, Britain, Denmark and Mexico recognize the need to estimate the tax gap. They acknowledge that such an exercise is, in the words of the U.S. Internal Revenue Service, a means of enabling government to "make better decisions about tax policy and the allocation of resources for tax administration."
The state of California, for example, estimates its tax gap to be approximately $10-billion (U.S.). The U.K. tax authority produces yearly estimates of its tax gap, calling them a "foundation" for the agency's strategy, enabling it to measure the effectiveness of its programs.
Similarly, the Swedish National Tax Agency uses its estimate as a means of risk management, helping to determine the best allocation of its resources.
It is certainly positive news that the Canadian government will dedicate $444.4-million to fight tax evasion and avoidance, but until the Canada Revenue Agency identifies the amount of the tax gap, no one knows if it needs $444.4-million in extra resources, or $888.8-million.
This is a problem because it is vitally important that the CRA receives all the resources it needs, as past experience demonstrates.
When the federal budget in 2005 gave a one-time injection of $30-million to combat "aggressive international tax planning," that led to – according to the CRA's own figures – more than $4-billion in additional taxes identified by 2011.
Think about that: In only six years, a $30-million investment became $4-billion in additional taxes owing. Quite a return for the Canadian economy.
In the 2015 federal election, the Liberal Party platform contained a commitment to "directing CRA to immediately begin an analysis and stronger enforcement of tax evasion, or what the OECD calls the tax gap."
The platform also included a pledge to measure results and encourage innovation to "continuously improve the services government provides to Canadians." Calculation of the tax gap is the very embodiment of that promise. Not only would it focus the attention of Canadians on the nature and scale of the problem of overseas tax evasion, but would also serve as a yardstick by which the effectiveness of the CRA and its policies can be measured. However, the CRA still refuses to commit to such an analysis, despite the change in government.
Measuring the tax gap is about the right of Canadians to know that their tax system is fair and fairly administered.
That fairness – and confidence in that fairness – must be the cornerstone of government policy and its laws in particular. As in all things, justice in our taxation system must be seen to be done. Tax-gap analysis seeks to bring some much needed transparency to that system, so that Canadians can see for themselves whether the results match the rhetoric.
The current state of affairs suggests an obvious failure on the part of the CRA to come to terms with a problem that is costing Canadians millions in lost tax revenue. As a result, we risk an erosion of confidence in our taxation system at a time when every dollar counts.
It is time for the CRA to respect the promise that Prime Minister Justin Trudeau made to Canadians during the election campaign and estimate the tax gap.
Only then will the government, and Canadians, know the size of the overseas tax-evasion problem and the resources needed to fix it.