Show download pdf controls
  • Measuring our impact on levels of willing participation

    Addressing non-compliance through audits and other correction activities will always be an important part of our compliance approach. However, our real success lies in ensuring taxpayers get things right from the start, locking in future compliance after we have made a correction and maintaining confidence that the right taxes continue to be paid. This approach sustainably reduces the tax gap.

    We know intuitively that our prevention and education activities help taxpayers get their tax right and influence the amount of revenue we collect. What we have not been able to do in the past is measure the impact of our activities in influencing levels of willing participation. Accordingly, we have and will continue to broaden our suite of measures to monitor the health of the system and our performance in managing it.

    This year, in addition to reporting estimates for tax gaps and total revenue effects, we have introduced a new measure called tax assured which estimates the amount of tax that we are highly confident has been reported correctly.

    Tax gap estimates

    Our tax gap research program estimates the tax gap for all key taxes in the Australian system, as well as programs we administer, such as super guarantee. Tax gaps estimate the difference between what the ATO collects and the amount that would have been collected if every taxpayer was fully compliant with the law.

    Tax gaps exist in all countries to some extent. They are driven by cultural and human factors, global forces, complexity in business and legal systems, genuine errors and those who seek aggressive tax positions. No tax system can eliminate tax gaps; the cost and impost on the community and the ATO resources required would be excessive.

    Tax gaps provide insights into the operation of the tax and superannuation systems. Along with other performance measures, tax gaps tell a story about levels of willing participation and significant shifts in compliance. They can guide us to the priority risks and opportunities, and where to invest our resources.

    The ATO aims to identify, manage and sustainably reduce tax gaps over time and maximise voluntary compliance. This requires engagement with stakeholders to understand the risks and drivers and how we can collaboratively address the issues.

    Recognising the importance of having reliable and credible tax gap estimates, we engage an independent expert panel to provide advice on the suitability of our gap methodologies and the reliability of the estimates. Our engagement with this panel ensures we have confidence in our estimates.

    As we develop new improved methodologies, we will release more estimates covering more taxes and revenue streams.

    An explanation of our methodologies and an analysis of each of the gaps are available at ato.gov.au/taxgap.

    TABLE 2.20 Net tax gap estimates – Transaction-based taxes, 2012–13 to 2017–18(a)(b)(c)

    Tax on goods and services

    Reliability assessment

    % / $m

    2012–13

    2013–14

    2014–15

    2015–16

    2016–17

    2017–18

    GST

    Medium

    %

    7.4%

    7.1%

    7.4%

    8.7%

    7.9%

    na

    GST

    Medium

    $m

    3,920

    3,997

    4,420

    5,500

    5,264

    na

    Wine equalisation tax(d) 

    Low/Medium

    %

    0.5%

    5.9%

    0.1%

    0.5%

    na

    na

    Wine equalisation tax(d) 

    Low/Medium

    $m

    6

    70

    1

    5

    na

    na

     

    Tax on excise and customs duties

    Reliability assessment

    % / $m

    2012–13

    2013–14

    2014–15

    2015–16

    2016–17

    2017–18

    Fuel excise

    Medium

    %

    2.5%

    2.1%

    1.0%

    1.9%

    1.9%

    na

    Fuel excise

    Medium

    $m

    416

    350

    168

    325

    330

    na

    Tobacco duty

    Medium

    %

    na

    na

    na

    5.6%

    na

    na

    Tobacco duty

    Medium

    $m

    na

    na

    na

    594

    na

    na

    NOTES
    (
    a) All estimates are rounded to the nearest $1 million.
    (b) Changes from previously published estimates occur for a variety of reasons, including improvements in methodology, revisions to data and additional information becoming available.

    (c) Due to data lags, estimates for 2017–18 are not yet available. Data is also not yet available to complete gap estimates for 2016–17 for the wine equalisation tax (WET) and tobacco duty.
    (
    d) Estimates for 2012–13 to 2013–14 capture WET payable only, not taking into account wine producer rebates and are derived from a top-down data matching model. 2014–15 estimates take into account wine producer rebates and are based on results from a random enquiry program. As a result, the estimates for 2014–15 onwards are of medium reliability, whereas the estimates for previous years remain low.
    TABLE 2.21 Net gap estimates – Programs we administer, 2012–13 to 2017–18(a)(b)(c)

    Administered programs

    Reliability assessment

    % / $m

    2012–13

    2013–14

    2014–15

    2015–16

    2016–17

    2017–18

    Superannuation guarantee

    Medium

    %

    5.3%

    5.2%

    5.0%

    4.8%

    na

    na

    Superannuation guarantee

    Medium

    $m

    2,623

    2,763

    2,774

    2,790

    na

    na

    Pay as you go (PAYG) withholding

    Medium

    %

    2.9%

    2.7%

    2.6%

    1.9%

    na

    na

    Pay as you go (PAYG) withholding

    Medium

    $m

    4,459

    4,373

    4,439

    3,356

    na

    na

    Fuel tax credits(d) 

    Medium

    %

    0.7%

    0.8%

    –0.4%

    –0.2%

    –0.3%

    na

    Fuel tax credits(d)

    Medium

    $m

    39

    48

    –21

    –12

    –20

    na

    NOTES
    (a) All estimates are rounded to the nearest $1 million.

    (b) Changes from previously published estimates occur for a variety of reasons, including improvements in methodology, revisions to data and additional information becoming available.

    (c) Due to data lags, estimates for 2017–18 are not yet available. Data is also not yet available to complete gap estimates for 2016–17 for super guarantee and PAYG withholding.

    (d) Estimates for fuel tax credits for 2012–13 to 2013–14 are based on results from benchmarking study undertaken on 2006–07 claims. Estimates for 2014–15 onwards are based on results from a random enquiry program.

    TABLE 2.22 Net tax gap estimates – Income-based taxes, 2012–13 to 2017–18(a)(b)

    Tax on income

    Reliability assessment

    % / $m

    2012–13

    2013–14

    2014–15

    2015–16

    2016–17

    2017–18

    Large corporate groups(c)  

    Medium

    %

    5.8%

    5.8%

    5.8%

    na

    na

    na

    Large corporate groups(c) 

    Medium

    $m

    2,526

    2,989

    2,526

    na

    na

    na

    Individuals not in business

    Medium

    %

    na

    5.8%

    6.4%

    na

    na

    na

    Individuals not in business

    Medium

    $m

    na

    7,474

    8,761

    na

    na

    na

    Large superannuation funds

    Medium

    %

    1.4%

    1.7%

    2.2%

    1.5%

    na

    na

    Large superannuation funds

    Medium

    $m

    94

    110

    156

    127

    na

    na

    Small superannuation funds(d)

    Medium

    %

    na

    na

    3.2%

    na

    na

    na

    Small superannuation funds(d)

    Medium

    $m

    na

    na

    40

    na

    na

    na

    NOTES
    (a) All estimates are rounded to the nearest $1 million.
    (
    b) Due to data lags, estimates for large corporate groups, individuals not in business and small superannuation funds for 2015–16, 2016–17 and 2017–18 are not yet available. Similarly, estimates for large superannuation funds for 2016–17 and 2017–18 are not yet available.
    (c) The results from 2012–13 onwards are projections based on the results from 2009–11. This is due to the significant time lag in commencing and completing large corporate group cases.
    (d) The estimates for small superannuation funds are based on results from a random enquiry program.

    Total revenue effects

    Total revenue effects is a measure of the revenue we collect as a result of our compliance engagements, including audits, other direct engagements and improvements to the design of the tax system. Total revenue effect is the total of what we call ‘audit yield’ and ‘wider revenue effects’.

    Audit yield refers to the additional tax liabilities identified and collected through audit activities. It includes interest and penalties.

    Wider revenue effects is an estimate of the additional tax revenue arising from our broader suite of activities, which we can defensibly measure and is not already captured by audit yield.

    Wider revenue effects is considered to be the component of voluntary collections that would not have been paid without ATO intervention. The measure provides us with evidence of the effectiveness of our focus on prevention before correction.

    In 2017–18, total revenue effects was $16.0 billion. This amount comprises of an audit yield of $11.8 billion and an estimated wider revenue effects of $4.2 billion.

    We attribute much of our wider revenue effects estimate to key activities including:

    • focusing on improving activity statement lodgment performance
    • working with individuals and tax agents to reduce over-claiming of work-related expenses
    • engaging with businesses of all sizes to influence the correct reporting of income and claiming of deductions.

    Measuring wider revenue effects is challenging. We implicitly know many of our help and education activities result in more people getting tax right; however, it can be difficult to quantify the effect of such activity. For this reason, we know that our wider revenue effects estimate is understated. We expect that the amount we attribute to wider revenue effects will grow as we develop our strategies to foster willing participation and evolve our ability to measure their effectiveness.

    For more information, refer to ato.gov.au/totalrevenueeffects.

    Tax assured

    Tax assured is an estimate of the proportion of tax reported that we are highly confident is correct. This measure is based on the concept of justified trust. We achieve justified trust and consider tax to be assured when we have objective evidence that the right amount has been reported.

    Generally, the ATO uses two approaches to gathering and assessing evidence to assure tax. Firstly, at a system level, we use data from third parties to match against information provided by taxpayers. Our second approach is based on one-to-one engagements with taxpayers where we can directly verify the information they report to us.

    For individuals, the main approach we use to assure tax is through our sophisticated third-party data-matching programs. Key data sets we match against taxpayers’ income tax returns include:

    • salary and wage information received from employers through the PAYG withholding system
    • interest and dividend data from financial institutions and public companies
    • pensions and allowances from government departments.

    For businesses, particularly larger businesses, we assure tax mainly through one-to-one engagements, which typically include annual compliance arrangements, advance pricing arrangements, reviews and audits.

    Our Justified Trust programs provide evidence to support our tax assured estimate by focusing on the top:

    • 100 public and multinational businesses
    • 1,000 public and multinational businesses
    • 320 private groups.

    From an indirect tax perspective, the majority of our tax assured estimate is based on our ongoing relationship management of our large excise clients.

    For 2015–16, we estimate 45.5% of total tax reported to be assured. This is the first time we have published our estimate for tax assured.

    In most cases, we can only assure tax reported by taxpayers once they have lodged and we have completed our data matching and one-to-one engagements. Due to this lag effect, our first estimate for tax assured is based on the 2015–16 financial year. We expect the proportion of tax assured for 2015–16 to increase as we complete more of our larger and more complex cases.

    Our tax assured estimate is generally understated as we do not always have the evidence to substantiate justified trust. Where we cannot access this evidence, our broader risk management frameworks provide us with a level of confidence over much of the tax reported we do not formally consider assured for reporting purposes. Our confidence is supported through our administration of systems and tools including the Tax Payments Reporting System, industry benchmarks, real-time analytics and risk algorithms.

    When considered together with our other revenue measures, tax assured gives insight into the integrity of the revenue system. Our tax gap program estimates the amount of tax that is not reported, while tax assured represents the amount of tax we are highly confident is correctly reported.

    As the quantity and quality of data we collect improves, the amount of tax we estimate to be assured will increase.

    For more information, refer to ato.gov.au/taxassured.

      Last modified: 19 Oct 2018QC 57116