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  • Managing revenue

    Revenue collection

    The net GST cash outcome (excluding non-GIC penalties) for 2016–17 was $59.8 billion1, including net Department of Immigration and Border Protection collections of $3.5 billion2. This result was 1.3% (or $815 million) below the May 2016 Budget estimate of $60.7 billion and 1.0% ($605 million) above the revised May 2017 Budget estimate of $59.2 billion.

    The outcome was 4.3% (or $2.5 billion) higher than 2015–16 collections. This was consistent with growth in household consumption, which had accompanied a decline in the household savings rate and was buoyed by high levels of wealth, despite continued subdued wage growth. Collections had also been supported by continued strength in dwelling investment.

    The 2016–17 Budget cash estimate was $60.7 billion. The forecast was revised down by $920 million to $59.7 billion at the mid-year economic and fiscal outlook in December 2016. This primarily reflected a downward revision to forecasts of consumption subject to GST.

    In the 2017–18 Budget, the cash estimate was revised down by a further $500 million to $59.2 billion primarily reflecting weaker than expected net GST collections to April 2017. The final cash collections outcome for 2016–17 was $605 million higher than the 2017–18 Budget estimate primarily due to stronger than expected April and May statement collections. This is consistent with stronger than expected growth in retail trade in the months of April and May.

    The difference between net GST accruals (on a tax liability method (TLM) basis)3 and cash collections was $2.0 billion. Gross GST debt was the most significant component of this difference.

    The estimated total statement outcome for the June 2016 to May 2017 business activity statements (excluding GST collected by the Department of Immigration and Border Protection) was $56.4 billion.

    Notes:

    1. Outcomes exclude non-general interest charge (non-GIC) penalties.

    2. Net Department of Immigration and Border Protection (DIBP) collections include refunds issued under the Tourist Refund Scheme.

    3. TLM is defined as being the earlier of: the cash payment received or the associated liability being recognised.

    Table 9: GST revenue and collections (including net GST collected by DIBP)

     

    2014–15

    2015–16

    2016–17

    Net GST cash collections

    $54.3b

    $57.4b

    $59.8b

    Net GST accrued (TLM)

    $55.7b

    $59.1b

    $61.8b

    Note: The previously published Net GST accrued figure for 2014–15 ($56.1 billion) has been reduced to $55.7 billion to exclude liabilities that were yet to be raised for that year. The tax liability method (TLM) basis excluded this estimate.

    Activities to ensure appropriate collection of revenue

    Our strategies this year have continued to focus on achieving fair and reasonable outcomes for our clients. Where people are transparent about their tax affairs and participate willingly, we limit our intervention. For those who are not willing to do the right thing, we will take action and, where necessary, use all avenues available to us under the law.

    In 2016–17, direct activities to address non-compliance raised $2.9 billion in compliance GST liabilities, a 12% decrease on last year’s outcome. This year we had a total of approximately $288 million in large 'outlier' cases and in 2015–16 we had approximately $474 million. (Outlier cases are those with a GST adjustment greater than $20 million.)

    The Cash and hidden economy program exceeded plan by 9.9% in 2016–17, with 2.6% fewer audit cases completed. When including penalties, 2016–17 was slightly lower than 2015–16. The program also contacted and assisted over 23,000 businesses by showing them the range of electronic tools and information available to support them in running their business.

    Table 10.1: Compliance results (GST tax liabilities excluding penalties and interest) by market segment

    Market segment

    2015–16

    2016–17

    Micro businesses

    $1,598m

    $1,301m

    Small and medium businesses

    $1,040m

    $1,021m

    Large businesses

    $461m

    $467m

    Government

    $41m

    $8m

    Not-for-profit organisations

    $126m

    $61m

    Other

    $29m

    $37m

    Subtotal

    $3,295m

    $2,895m

    Flow-on results achieved from GST-related Budget measures

    $144m

    $144m

    Total

    $3,439m

    $3,039m

    Notes:

    • Indirect revenue outcomes are from GST related Budget measures – GST voluntary compliance program, Taxable Payments Reporting System, and cash economy.
    • Totals may differ from the sum of components due to rounding.
    Table 10.2: Compliance results (cash collections), by market segment

    Market segment

    2015–16

    2016–17

    Micro businesses

    $1,399m

    $1,334m

    Small and medium businesses

    $882m

    $889m

    Large businesses

    $340m

    $450m

    Government

    $41m

    $2m

    Not-for-profit organisations

    $126m

    $63m

    Other

    $22m

    $11m

    Subtotal

    $2,809m

    $2,749m

    Flow-on results achieved from GST-related Budget measures

    $134m

    $134m

    Total

    $2,943m

    $2,883m

    Notes:

    • Total cash collections include penalties, interest, and some amounts raised in previous years but collected during 2016–17.
    • Indirect revenue outcomes are from GST related Budget measures – GST voluntary compliance program, Taxable Payments Reporting System, and cash economy.
    • Totals may differ from the sum of components due to rounding.
    Table 10.3: Compliance results (client contact cases) by market segment

    Market segment

    2015–16
    (no.)

    2016–17
    (no.)

    Micro businesses

    968,067

    1,018,507

    Small and medium businesses

    45,498

    47,950

    Large businesses

    3,055

    4,412

    Government

    4,563

    6,574

    Not-for-profit organisations

    22,183

    27,849

    Other

    4,129

    10,554

    Subtotal

    1,047,495

    1,115,846

    Flow-on results achieved from GST-related Budget measures

    na

    na

    Total

    1,047,495

    1,115,846

    Notes:

    • A client may be contacted more than once by the ATO in the financial year.
    • Indirect revenue outcomes are from GST related Budget measures – GST voluntary compliance program, Taxable Payments Reporting System, and cash economy.
    • Totals may differ from the sum of components due to rounding.

    Through our ‘permanent establishment’ work program, we have focused on examining the structural (including information technology infrastructure) and transactional arrangements between non-resident multinational entities, their Australian-based subsidiaries and the supplies of intangibles into Australia. As a result, the ATO is seeing a significant positive impact on GST in relation to permanent establishment. We have:

    • seen a significant increase in revenue as a result of our focus on global entities restructuring in response to the multinational anti-avoidance legislation (MAAL)
    • engaged with significant global entities in a holistic way – that is, we coordinate with income tax our interaction with clients to improve the client experience
    • improved our risk identification through our understanding of contemporary business models
    • improved on workforce capability – for example, we have increased our focus on complex issues around permanent establishment
    • increased our capability in relation to exchange of information with other jurisdictions.

    GST analysis indicates a low GST risk with most of the existing sharing economy arrangements other than ride-sourcing. During 2016–17, our focus has been on providing help and assistance to ensure the industry understands their obligations. In particular, we have:

    • updated our data-matching protocol to obtain data from all facilitators (there are currently 12 facilitators in Australia)
    • commenced collection and analysis of data obtained directly from platforms
    • engaged with industry via direct contact with facilitators and industry bodies
    • taken a whole-of-government approach, by engaging at various levels of government, including other agencies, such as Services Australia and DIBP, as well as local government transport authorities
    • updated all forms of web and media content, including social media, various media releases and Small Business Newsroom emails
    • written to over 60,000 drivers between September 2016 and March 2017 with advice on what they should do to meet their tax obligations
    • taken a firmer approach to drivers that continue to ignore us – in particular:
      • drivers that are registered but fail to lodge either BAS or income tax returns are being referred directly for inclusion in the ATO lodgment program
      • drivers that continue to ignore our requests to register for GST will be referred for automatic GST registration.
       

    Some participants in the precious metals industry chose to not account for the GST payable or claimed input tax credits inappropriately. Intelligence received from the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian Securities and Investments Commission (ASIC) and the DIBP indicated that some aspects of gold bullion trading were alleged to be associated with major crime.

    To address this problem an amendment to the GST Act, resulting in the implementation of the reverse charges for valuable metals, received Royal Assent on 26 June 2017. This now means that if gold, silver or platinum are purchased from another business, the purchaser no longer needs to pay GST to the seller. Instead, the purchaser is responsible for reporting and paying the GST amount when they lodge their BAS.

    In 2016–17, 86 cases were completed, with $294.8 million liabilities raised ($177.1 in revenue and $117.8 million in penalties). As at June 2017, there were 34 objections pending, eight litigation matters are at differing stages with the AAT, disputing approximately $276 million in GST, income tax and related penalty assessments. In addition, there are three litigation matters that concern refund retention.

    This year, our Real Property work program focused on:

    • a ‘support and educate’ communication approach assisting taxpayers to understand and meet their property GST obligations
    • enhanced case selection, improved and more timely third-party data collection and analysis
    • law changes, rulings, determinations and litigation outcomes
    • early engagement with property developers.

    To support this focus we:

    • delivered three webinars (GST Margin Scheme, GST Partnerships and Joint Ventures) ‘pitched’ at property developers and advisors, with a total of 1,275 participants attending these events
    • published GST property specific content on ato.gov.au (such as margin scheme, valuations, contract issues, GST correct reporting, supplier checks and general record keeping) – these web documents and updates received in excess of 462,000 views.
    • received 310 GST property-related questions via our online website assistant, ‘Alex’
    • achieved a wide reach using social media (Twitter and LinkedIn), with in excess of 84,600 users
    • rolled out an engagement program, providing assistance to property developers to help them understand their obligations prior to settlement – this included 57 client contact cases resulting in revenue assured of $113.6 million (70% in the public groups client experience) and revenue protected of $1.7 million
    • provided guidance on ad hoc GST property-related questions from a range of government entities
    • facilitated escalation and resolution of development lease issues involving government entities
    • provided input on GST property-risk issues to other ATO areas working on states and territories entities
    • raised $341.1 million in GST liabilities through the property work programs, exceeding the plan by 21.3%.

    The cash and hidden economy program, which commenced in June 2017, is using third-party data to support its focus on cash-only business across Australia. The program is expected to include visits to high street businesses in locations across Australia where there are high instances of cash-only businesses, to discuss our concerns and to information about electronic payments and the benefits they provide to business.

    Prosecutions

    Our firmest strategies to deal with fraudulent behaviour are criminal investigations and prosecutions. These are complemented by a communication strategy and additional treatments, such as referrals to Criminal Asset Confiscation Taskforce for proceeds of crime action and referrals to ASIC for director disqualification action.

    During 2016–17, we:

    • delivered 63 GST-related outcomes as a result of completing 82 investigations – this was above plan for the year and up from the previous year
    • referred 24 new GST-related briefs of evidence for breaches of the Criminal Code to the Commonwealth Director of Public Prosecutions (CDPP)
    • delivered one brief of evidence to our internal prosecution area for the prosecution of offences under the Taxation Administration Act 1953
    • issued four warning letters.

    The matters referred to the CDPP cover a range of GST risks, including refund integrity issues such as lodgment of suspected fraudulent BAS, disengaged property developers, serious evasion, and phoenix activities.

    During the year, there were 15 GST-related fraud matters where successful prosecution action was taken by the CDPP. Sentences ranged from a community service order to a prison sentence of seven years with a non-parole period of three years. Reparation orders of $3.9 million were also obtained.

    Internal prosecutions

    We deliver prosecution outcomes in magistrate courts throughout Australia in relation to Tax Administration Act offences. These include failure to meet BAS lodgment obligations, making false and misleading statements and not complying with notices issued by the ATO requiring the provision of information, documents or attendance at an interview. In 2016–17, we successfully prosecuted 1,095 breaches of the Tax Administration Act 1953, resulting in $8.9 million being awarded in costs and fines.

    In 2016–17, investigations focused on earlier engagement through the development of a new fraud referral process, which included the allocation of three experienced and senior relationship managers to assist with referrals. For the most serious and complex matters we have developed the Complex Investigation Unit to deliver tailored responses and can potentially seek the support of the Serious Financial Crime Taskforce.

    In 2016–17, we introduced Project Blossom, a joint initiative between the ATO and CDPP to enhance engagement between the two agencies, with a view to delivering increased efficiency across the spectrum of ATO criminal treatment strategies. This will include improving the efficiency of tax crime investigations and prosecutions in relation to GST risks, delivering timelier, higher quality, less costly and better results.

    Currently, ATO prosecutors communicate with taxpayers and explain the court process and, as a result of this engagement and the magistrate’s interaction with the taxpayer, the lodgment of BAS occurs in the majority of cases. We are considering how to use behavioural insights when engaging with taxpayers, and aiming to improve advocacy in the court room to expedite lodgment and the court process.

    To deliver more targeted prosecution outcomes under GSTAS-tied funding, we prioritise taxpayers who fail to comply with court imposed lodgment orders. In these circumstances, further proceedings are initiated, which is designed to ensure lodgment by these most resistant taxpayers.

    To maximise the impact of cases prosecuted, we have developed a formal communication strategy for investigations and prosecutions. This strategy increases awareness in the community of the impact of non-compliance with tax obligations and, as a result, increases general deterrence for not lodging BAS, making false and misleading claims and statements and not responding to auditor requests.

    GST gap

    The GST gap is the difference between the amount of GST payable under the law (theoretical GST liability) and the amount actually collected by us (actual GST revenue) for a defined period, typically a financial year.

    Measuring the GST gap

    We use a top-down approach to estimate the GST gap on an accrual basis. The top-down approach compares:

    • total accrual GST liabilities for a year, with
    • theoretical GST liabilities for that year, calculated using external economic data.

    The methodology is based on the approach recommended by the International Monetary Fund (IMF), and used globally for estimating value added tax (VAT) and GST gaps.

    The reliability of the GST gap estimate is assessed as medium.

    Trends and latest findings

    Australia’s GST gap compares favourably with similar international tax jurisdictions. In recent years, it is in line with the best performing European Union (EU) member countries, and compares well with the Canadian estimate.

    After reaching a recent trough in 2012–13 at 5.7%, the GST net gap (including non-pursuable debt) has trended slightly upward. In 2015–16, the total value of the theoretical GST liability has increased to 7.3% in 2015–16.

    The rising gap reflects stronger growth of the theoretical GST liability estimate relative to actual GST collections. The main contributors to growth in the theoretical GST liability estimate had been transactions in new dwellings (as indicated by GFCF in dwellings) and profitable land sales, which are consistent with the national housing boom that has taken place over the past few years. However, there can be a significant lag between dwelling construction activity and eventual GST liabilities reported to the ATO. Developers tend to claim GST credits on their expenditure throughout the construction phase, while the realisation of GST liabilities only occurs upon sales of the new dwellings (Completion or sales can sometimes takes years from commencement). As such, the relative softer growth in GST collections over the past few years could potential herald a catch-up period in future years.

    Another component of the theoretical GST liability that is associated with the property sector is the consumers' share of ownership transfer costs. Its contribution to growth in the theoretical liability has also increased on average in recent years. More work is required to precisely isolate the stamp duty component – which is not subject to GST – from the ownership transfer cost data by the ABS in the future.

    Figure 4: Amount reported and net gap - GST, 2009-10 to 2015-16

    GST amount reported and net gap. This graph shows the GST gap from 2009–10 to 2015–16 against GST reported. The GST gap over the last seven years was: $2 billion in 2009–10, $3.5 billion in 2010–11, $3.5 billion in 2011–12, $3.0 billion in 2012–13, $3.3 billion in 2013–14, $3.9 billion in 2014–15, and $4.5 billion in 2015–16.

    Data sources: ABS, Treasury and ATO data.

    Managing the GST gap

    A range of taxpayer behaviours can affect the gap. These include non-reporting of GST, under-reporting of GST, and over-claiming of refunds. Examples include incorrect classification of transactions in accounting systems, creation of false tax invoices, innocent claiming of private expenses and non-reporting of sales liable for GST.

    In 2015–16, to minimise the tax gap and maximise voluntary compliance, we adopted a balanced and targeted compliance program. This is based on transparency, risk and behaviour.

    We will continue to monitor compliance through the use of third-party data holdings, analytics and risk-mitigation activities. Our focus is on providing assistance and early engagements designed to prevent compliance issues before they arising. This has resulted in a significant investment shift to assurance and early intervention activities, with a view to fostering voluntary compliance, reducing mistakes and an increased focus on those not doing the right thing.

    We increased our engagement with taxpayers where we identified potential non-compliance, and provided taxpayers with options to rectify these errors or omissions. Where taxpayers were not willing to comply, we applied appropriate remedial approaches available to us under the law.

    GST voluntary compliance ratio

    The voluntary compliance ratio (VCR) complements the GST gap by measuring the proportion of taxpayers fully compliant with all four pillars of compliance (registration, lodgment, reporting and payment). To be fully compliant, the taxpayer must:

    • be correctly registered
    • lodge by the required due date
    • report the correct amount of GST, and
    • pay the amount on time.

    The proportion of taxpayers voluntarily complying with their obligations and the value of GST remitted voluntarily are important indicators of the health and community confidence in the GST system.

    Measuring the VCR

    The GST voluntary compliance ratio is measured at two levels:

    • taxpayer level – the number of taxpayers who completely meet all their obligations for the financial year
    • GST-value level – the amount of GST, by value, that is voluntarily provided to us in accordance with the law.

    VCR trends and latest findings

    The VCR is built on the assumption of strict administrative compliance with obligations, especially as it relates to lodgment. The analysis identified that 44% of taxpayers voluntarily comply with our strict VCR test. This does not give any consideration to minor unintentional late payments or lodgments.

    The level of voluntary compliance at the taxpayer level increases to 83% by adjusting for:

    • taxpayers who have no total business income in the year (that is, a nil BAS)
    • taxpayers who are only considered non-compliant for having
      • one BAS lodged late, and/or
      • one late payment.
       

    At the GST-value level, the amount of revenue received voluntarily (that is, paid on time and without enforcement action) has progressively improved over time and in 2015–16 was equivalent to 83% of theoretical GST revenue.

    Figure 5: GST voluntary compliance ratio, 2008–09 to 2015–16

    This graph shows the results for the voluntary compliance ratio by revenue value from 2008–09 to 2012–13. Results for GST value are 77% in 2008–09, 80% in 2009–10, 81% in 2010–11, 82% in 2011–12, 81% in 2012–13, 84% in 2013–14, 82% in 2014–15 and 83% in 2015–16. Results for taxpayers are 48% in 2008–09, 49% in 2009–10, 48% in 2010–11, 47% in 2011–12, 48% in 2012–13, 49% in 2013–14, 45% in 2014–15 and 44% in 2015–16.

    Note:

    Previously published figures have been updated with latest GST gap data.

      Last modified: 30 Jan 2018QC 54336