Journal of Tax Research

The speed and unlimited scope of the development of the digital economy, in addition to the dramatic transformation of the business sector, has created serious challenges for governments and the traditional tax system. New business models, including cross-border and intra-border data flows, virtual transactions, and platform economies, have increasingly complicated issues of defining the source of tax, determining tax rates, tax legislation and fiscal policy, tax jurisdiction, and profit allocation. The present study examines the impact of digital economy indicators on the tax gap by estimating the amount of the tax gap as an indicator of total tax evasion and avoidance through the method of determining potential tax capacity in three pillars, separated into income tax and import tax, and tax on goods and services in the period 2012-2024 using the GMM panel model method for 17 selected countries, as well as comparing the situation of Iran with some of the leading countries on this list, including Russia and South Korea. The digital economy indicators used in this study include the Information and Communication Technology Development Index (IDI), the Network Readiness Index (NRI), and the e-Government Development Index (EGDI). According to the research results, the ICT Development Index and the Network Readiness Index facilitate improved economic transparency, transaction tracking, data exchange between financial institutions, and increased tax organization efficiency; these factors reduce tax evasion and bring collected tax closer to potential tax, thus having a negative effect on the tax gap. Given these findings, it is suggested that developing countries, in order to reduce the tax gap, focus on strengthening the practical use of information and communication technology in tax and customs processes and advance the development of e-government along with institutional infrastructure, staff training, and legal transparency. Also, improving the design of the tax system by considering the complexity of taxable income and coordinating it with inflation and economic development can purposefully reduce the tax gap and increase the efficiency of direct and indirect tax collection.