Tax Gap

Definition ∞ The Tax Gap represents the difference between the total amount of tax legally owed to a government and the amount actually collected. This discrepancy arises from various factors, including underreporting of income, underpayment of taxes, or non-filing. It poses a significant challenge for public finances.
Context ∞ In the digital asset space, the tax gap is a growing concern for tax authorities globally due to the pseudonymous nature of many cryptocurrency transactions and the difficulty in tracking individual holdings and gains. This situation complicates efforts to ensure accurate reporting of capital gains and income derived from crypto activities. Governments are actively developing new reporting requirements and enforcement mechanisms to reduce this gap and improve tax compliance within the digital economy.