Show download pdf controls
  • GST gap

    The GST gap is an estimate of the difference between the amount of GST payable under the law (theoretical GST liability) and the amount actually collected by the ATO (actual GST revenue) in a financial year.

    Since the introduction of GST in July 2000, there has been no change to the 10% GST rate. However, some recent changes have improved the coverage of the tax, including the extension of GST to:

    • imported services and digital products
    • low value imported goods below $1,000.

    For the 2017–18(a) year, we have estimated the GST net gap to be $5.0 billion or 7.3% of the total theoretical GST liability.

    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. This is calculated using external economic data.

    The methodology is based on the approach recommended by the International Monetary Fund that is 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. Over a five-year time frame, it is in line with the comparable best performing European Union (EU) member countries, and compares favourably with the United Kingdom estimate.

    The net gap estimate for the 2017–18 financial year is $5.0 billion or 7.3% of the total theoretical GST liability. That represents an increase of approximately $283 million from our revised 2016–17 estimate of 7.2%.

    Figure 4: Amount reported and net gap – GST, 2014–18

    This graph shows the GST gap from 2013–14 to 2017–18.  2013–14: tax paid $51.84b; net gap $4.06b. 2014–15: tax paid $55.13b; net gap $4.24b.  2015–16: tax paid $57.51b; net gap $4.71b. 2016–17: tax paid $60.95b; net gap $5.16b. 2017–18: tax paid $63.56b; net gap $5.00b. Note: GST gap data remains one year in arrears due to the timing of the National Accounts data releases. The data for the reporting period 2018–19 relates to gap estimates in 2017–18.

    Data sources: ABS, Treasury and ATO data

    ATO action to reduce the gap

    A range of taxpayer behaviours can affect the GST gap, including non-reporting of GST, under-reporting of GST and over-claiming of refunds. Specific examples include incorrectly classifying transactions in accounting systems, creating false tax invoices, incorrectly claiming private expenses, and participating in the black economy.

    We continue our efforts to minimise the tax gap and maximise voluntary compliance through a balanced and targeted compliance program focused on preventative early engagement and assurance activities.

    We use third-party data holdings, analytics and risk mitigation activities to monitor compliance. Our focus on activities that are designed to prevent compliance issues before they arise has resulted in a significant investment shift to assurance and early engagement activities. We foster voluntary compliance by supporting those that want to do the right thing and reduce their mistakes.

    We have an increased focus on those not doing the right thing and deliberately evading GST, and take a firmer approach to those unwilling to meet their obligations.

    The way we target the tax gap informs our risk management approaches. We have made it easier for clients to voluntarily comply (Note: further detail is available in the risk and new measures chapter of this report).

    GST at settlement legislation became effective from 1 July 2018, to address phoenix behaviour in the property sector. This made it a requirement for certain purchasers to withhold the GST from the price of the supply and pay the GST directly to the ATO.

    Legislation in effect from 1 April 2017 addressed the specific risk from some participants in the precious metals industry who chose not to account for GST payable, or claimed input tax credits inappropriately. The legislation amended the GST Act to implement reverse charges for valuable metals.

    GST on imported services and digital products legislation was introduced to level the playing field between Australian businesses and non-resident businesses that provide goods and services in Australia. From 1 July 2018, GST applies to most sales of low value goods imported by consumers into Australia.

    To strengthen confidence and provide assurance that our largest businesses are paying the right amount of tax, we systematically engage with them to obtain objective evidence that supports willing participation. This includes addressing the focus areas under the Justified Trust program.

    We will continue to close the gap by:

    • further streamlining, automating and integrating GST tax obligations to reduce the cost of compliance and increase assurance
    • building trust and confidence within the community to support willing participation and deliver government commitments, including the black economy taskforce commitments.

    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, a taxpayer must:

    • be correctly registered
    • lodge by the due date
    • report the correct amount of GST
    • pay the correct 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 of – and community confidence in – the GST system.

    Measuring the voluntary compliance ratio

    The GST VCR is measured at two levels:

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

    Voluntary compliance ratio trends and latest findings

    The VCR assumes strict administrative compliance with obligations, especially as it relates to lodgment. It has been stable over recent years, with 44% of taxpayers voluntarily complying with our strict VCR test. This does not give any consideration to minor unintentional late payments or lodgments.

    Voluntary compliance at the taxpayer level increases to 80% 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.

    In making these adjustments, we recognise there is a significant proportion of taxpayers who aim to do the right thing but are late with either a single lodgment or payment.

    At the GST-value level, the amount of revenue received voluntarily (that is, paid on time and without enforcement action) has been stable over recent years. In 2017–18, this was equivalent to 82% of theoretical GST revenue.

    Figure 5: GST voluntary compliance ratio(b)

    This graph shows the results for the GST voluntary compliance ratio at both the taxpayer level and GST-value level from 2013–14 to 2017–18.  2013–14: GST value 82.8%; taxpayers 48.6%. 2014–15: GST value 81.2%; taxpayers 44.2%. 2015–16: GST value 80.7%; taxpayers 42.5%. 2016–17: GST value 81.6%; taxpayers 44.8%. 2017–18: GST value 82.2%; taxpayers 43.8%. Note: GST gap data remains one year in arrears due to the timing of the National Accounts data releases. The data for the reporting period 2018–19 relates to gap estimates in 2017–18. The chart contains previously published figures with latest GST gap data.

    Data source: ATO data

    NOTES:(a) GST gap data remains one year in arrears due to the timing of the National Accounts data releases. The data for the reporting period 2018-19 relates to gap estimates in 2017-18.(b) Previously published figures updated with latest GST gap data.
      Last modified: 01 Jul 2020QC 61031