Tax Evasion: The Hidden Truth Revealed

A recent study by economists Søren Bo Nielsen, Poul Schou, and Jacob Krog Søbygaard has shed light on the often- blurred lines between income tax evasion and consumption tax evasion in Denmark. Using data from various sources, including the Ministry of Taxation and Statistics Denmark, the researchers have calculated that the difference between the two figures is not solely due to activities in the underground economy.

Factors Contributing to the Discrepancy

According to the study, the discrepancy between the two figures can be attributed to a combination of factors, including:

• Simple labor income tax evasion
• Incorrect reporting of income earned
• Individuals storing assets abroad without declaring them to the authorities
• International income shifting (although its impact on the data is less clear)

Study’s Findings

The study’s findings are based on calculations for the years 1995-1997, which were presented in detail in Table 4. The numbers revealed a deficit of between DKK 20 and 40 billion (1.8 to 3.6 percent of GDP) in each year, indicating that there is a significant difference between tax evasion of income on one hand and tax evasion of consumption on the other.

Implications

The researchers cautioned that the exact size of the individual figures should be taken with considerable caution due to the uncertain nature of the data used. However, their findings suggest that:

• Tax authorities may need to re-examine their strategies for detecting and combating tax evasion in order to ensure a more level playing field for taxpayers.
• A more comprehensive approach to tax enforcement may be necessary to ensure a level playing field for taxpayers.
• The study’s findings highlight the importance of accurate data collection and analysis in understanding the complexities of tax evasion.

Key Findings

• The difference between income tax evasion and consumption tax evasion is not solely due to activities in the underground economy.
• Simple labor income tax evasion, incorrect reporting of income earned, and individuals storing assets abroad without declaring them to the authorities are all contributing factors.
• International income shifting may also play a role, although its impact on the data is less clear.
• The deficit between income tax evasion and consumption tax evasion totals between DKK 20 and 40 billion (1.8 to 3.6 percent of GDP) in each year.