Improving the effectiveness of tax collection: $30 in additional revenue for every $1 spent?
- Tera Allas and Jonathan Dimson
- Feb 2018
- McKinsey & Co
- International
Improving tax-collection processes and cracking down on tax evasion are among the few ways governments can raise more revenue without prompting a vocal outcry from at least some parts of the electorate. Fortunately, it is becoming easier for governments to pursue these objectives. The trend toward cashless, digital transactions, coupled with the emergence of powerful data and analytics tools (new algorithms, visualization technologies, and data-management approaches, for instance) is helping tax authorities significantly reduce revenue leakages. At the same time, increasing automation of tax-collection tasks is helping governments reduce processing times, costs, errors, and fraud. Estimated tax evasion between 2005 and 2015 declined in 34 of 44 countries analyzed in a study commissioned by the McKinsey Center for Government (MCG).1 Across all 44 countries, there was an average decrease in estimated tax evasion of 0.1 percent of country GDP.2 During that same ten-year period, more than 50 percent of the 32 countries for which we also have cost data managed to reduce their overall expenditure on tax administration per capita by about 20 percent, on average, according to the Organisation for Economic Co-operation and Development (OECD) tax-administration database...
