Compliance & Assurance
The evidence behind lever ⑦ — the shift from occasional, sampled manual audits to algorithmic auditing of every digitally-verifiable transaction. Unlike the other levers this is a benchmark picture, not a per-country table: it sizes what assurance costs today and what verifiable evidence changes.
Canonical published output — distilled from research/compliance-assurance/.
Tax administration — assurance is sampled and labour-heavy
| Indicator | Figure | Source |
|---|---|---|
| Cost of collection (operating cost ÷ net revenue) | ≈ 0.65% (2023; 0.88% in 2014) | OECD / ISORA |
| Staff on audit / investigation / verification (large-taxpayer offices) | 60.4% | OECD / ISORA |
| Audit adjustment rate | ~60% | OECD / ISORA |
| Additional revenue raised through audits | 3–4.2% of total collections | OECD / ISORA |
Audits are sampled yet consume most verification staff and recover only a few percent of revenue — exactly the model algorithmic auditing of every verifiable invoice replaces.
The undetected pool — coverage, yield & deterrence
Sampled audit reaches a tiny share of transactions, so most non-compliance is never seen. Verifiable documents flip coverage toward ~100% at ≈ zero marginal cost and add a deterrence effect audit cannot.
| Indicator | Figure | Source |
|---|---|---|
| Tax audit coverage | individuals 0.44%, corporations 0.74% | IRS Data Book FY2023 |
| Random-audit non-compliance (the unbiased baseline) | ~15% of tax (voluntary compliance ~85%) | IRS NRP / Tax Gap TY2022 |
| Customs operating model | ~96% of trade clears untouched | WCO PCA Guidelines |
| Customs random undervaluation gap | declared values 37% below reference; only 3.2% flagged | World Bank RCT, Madagascar (2020) |
| EU VAT compliance gap | €128bn (9.5%) | EU VAT Gap 2025 |
| US gross tax gap | $696bn (TY2022) | IRS Pub. 5869 |
| E-invoicing realised uplift | Mexico +14% declared rev; Italy €2–4bn/yr; Peru +8% VAT liabilities | IDB–CIAT / govt / IMF |
The honest reading (two guardrails): (1) targeted ≠ random — risk-targeted audits show high hit rates because they self-select; only random programmes size the population pool. (2) An error-line rate is not a revenue rate — e.g. Australia’s random sample finds errors on ~32% of lines, but dollar-weighted leakage is far smaller (under 5%), and ~$0.25bn/yr is recovered via voluntary disclosure. The defensible large-pool case rests on lower-compliance economies (much bigger gaps) and the deterrence channel universal verification adds on top of detection — which is also what enlarges the incentive pool customs and tax can share with adopters.
Evidence-based assessment works (VAT-strong, CIT-thin)
| Indicator | Figure | Source |
|---|---|---|
| Peru e-invoicing → reported value-added (4-year) | +21% | IMF WP/19/231 |
| Peru e-invoicing → reported VAT liabilities (year 1) | +8% (chiefly deterrence) | IMF WP/19/231 |
| First-year effect, concentrated in smaller firms | +5–7% sales/purchases | IMF |
| Mexico CFDI → declared revenue (3-year) | +14% | IDB–CIAT 2018 |
| Italy SdI → additional VAT collected | €2–4bn/yr | Italian govt projections |
Strong proof for VAT; the effect is chiefly deterrence (firms self-correct under universal visibility), not just detection. Corporate-tax evidence-based assessment remains the frontier (modelled as a qualitative upside, option A, not yet a number).
(Note: an earlier “+9.3% net tax revenue over 4 years” figure for Peru is not supported by the IMF primary source — net VAT payments dipped short-term as firms drew down VAT-credit stocks — and has been removed. The robust claims are the reported value-added / liabilities effects above.)
Customs & banks — the cost of assurance
- Customs (WCO): post-clearance audit is explicitly risk-based / sampled and field audit carries “high administrative cost.” A worked case recovered ~US$26.6M on ~US$2.6M of audit cost — but only over the audited sample.
- Banks: KYC review $1,500–3,500 per commercial client; AML/sanctions screening 95–98% false-positive rate; trade-finance loss-given-default just 0.10% / 0.02% (import/export LC) — so assurance cost, not default risk, is the binding constraint on lending, especially to SMEs (Fenergo; Wolfsberg/ICC; ICC Trade Register).
The “algorithmically-clearable share”
The fraction of transactions/applications where verifiable evidence is sufficient to auto-assess (excluding sanctioned/blacklisted and novel-risk cases) has no authoritative figure — it is a defended assumption, anchored on the 95–98% AML false-positive rate and trusted-trader coverage, used with a sensitivity range.
How this feeds the business cases
Lever ⑦ books the assurance cost saved (audit / due-diligence / KYC labour) plus risk reduction; the revenue and finance that better assurance enables are counted under ②③④. See the Assessment Methodology.
Sources
OECD Tax Administration 2025 / ISORA (cost of collection, audit staffing); WCO
post-clearance audit; Wolfsberg/ICC/BAFT trade-finance due diligence; IMF (Peru
e-invoicing); Fenergo / LexisNexis (KYC cost); ICC Trade Register. Full extraction
in research/compliance-assurance/.