Application of Indirect Assessment Methods for Personal Income Tax: Regulation and Opportunities for Enhancing Tax Audits

Abstract

This study examined the implementation and effectiveness of indirect assessment methods in personal income tax administration, with particular emphasis on regulatory frameworks and opportunities to enhance tax audit effectiveness. The research employed a statistical analysis, case study examination, and comparative assessment of implementation practices across different jurisdictions. The study primarily focused on Latvia's experience as a representative EU member state, analysing data from 2020-2024 on tax administration performance indicators and audit outcomes. The findings revealed that the successful implementation of indirect methods requires integrating advanced technological capabilities with appropriate legal frameworks. At the same time, effectiveness varies significantly across economic sectors and taxpayer categories. The research demonstrated that jurisdictions investing in digital infrastructure and staff expertise achieved 23.4% higher voluntary disclosure rates and improved assessment accuracy by 16.8%. Analysis of the Latvian experience showed that properly adapting international best practices to local conditions increased detection rates by 81.2% in 2024, with particularly strong results in the professional services and retail trade sectors. The study identified key success factors, including data quality, staff competency, and technological infrastructure. An analysis of implementation costs revealed significant variations in resource requirements, with initial technology investments ranging from 2.5 to 3.5 million EUR, yielding average returns of 185% over five years. The research demonstrated that jurisdictions with integrated tax administration systems had 15-20% higher success rates in implementing indirect assessment methods than those with fragmented systems.