Should Tax Risk Be Identified Solely with the Private Sector? Tax Gap and Risk Management in Public Sector: The Case of Poland

Abstract

Theoretical background: The article emphasizes the essence of tax risk interpreted from the perspective of fiscal authorities. The study is an invitation to initiate an in-depth scientific discourse on taking into account tax risk in the state’s financial policy. The study argues that tax risk management sensu stricto should be an integral part of modern and integrated management at every level of state authority. A deeper insight into tax risk in the context of noncompliance, but also in the broad sense of public liabilities management, is justified by many reasons. Government and local government finances are not immune to disruptions in fiscal policy-making, the costs of which are borne by society and the economy. The responsibility for this lies with those who, as economic analysis shows, act rationally, but evidence of a lack of fiscal discipline is also an element of the puzzle, which should in principle ensure responsible financial management. Thus, better tax risk management at every level of the General Government sector underlines the importance of financial resilience to unexpected shocks, countercyclical policy and, political credibility.

Purpose of the article: The objective of the study is to scientifically identify the essence of tax risk and to provide a comprehensive analysis of tax risk management from the perspective of fiscal authorities. To achieve this goal, three specific objectives were adopted: defining tax risk, justifying the linkage between tax gap and compliance risk management and emphasizing the necessity to monitor this risk in the established financial policy at every level of the state.

Research methods: The verification of the hypothesis is based on an in-depth examination of the literature on the subject and the information from reports of national and international institutions. An economic analysis of the tax gap was applied, using data from the Ministry of Finance and the Central Statistical Office. Estimates for Poland are provided, covering both central and local government sub-sectors. This fills the research gap and gives the research an innovative character. The research covered the most recent period of 2003–2023.

Main findings: The findings emphasize the need for a systematic approach to understanding and managing tax risk within public sector finances. Effective management requires integrating both internal and external risks arising from the relationship between taxpayers and tax authorities. Relying solely on unpaid taxes provides an incomplete view of tax risk. A holistic approach that considers non-compliance, tax errors, and discretionary policies is essential for accurately assessing lost revenues. Discretionary decisions in tax policy can impact tax risk differently across various government levels. To minimize tax risk effectively, implementing a comprehensive tax risk management framework at all levels of public authorities is crucial.