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  • 4. Measurement and effectiveness

    The term ‘black economy’ has now changed to ‘shadow economy’. This change reflects the Organisation for Economic Co-operation and Development’s (OECD) definition of unreported or dishonest economic activity. References to the Black Economy Standing Taskforce (BEST) will remain and the taskforce will continue to focus on activities identified under the OECD definition of ‘shadow economy’.

    8.1% Net GST gap

    82.7% Proportion of taxpayers voluntarily complying
    $3.0 billion Total revenue effects

    The ATO uses performance measures to monitor the health of the GST system. These performance measures include GST gap estimates, voluntary compliance ratio, total revenue effects and GST assured.

    Two of our performance measures (tax gap and tax assured) are ‘lag indicators’ that tell us about the tax performance in 2018–19 and 2017–18 respectively. The impacts of COVID-19 will not be known until we can produce measurements for 2019–20.

    Total revenue effects on the other hand is a contemporaneous indicator that tells us about the impact of our work on tax revenue in 2019–20. As such, total revenue effects have been impacted by a range of factors relating to COVID-19, including:

    • taxpayers’ ability to pay
    • our cautious approach to compliance, interest and debt recovery
    • our focus on delivering Government stimulus measures.

    Recognising the importance of having reliable and credible tax gap estimates, we continue to engage an independent expert panel to provide advice on the suitability of our tax gap methods and the reliability of our estimates.

    GST GAP

    The GST gap estimates the difference between the GST collected by the ATO and the amount that would have been collected if every taxpayer was fully compliant with tax law.

    We estimate the ATO collected 91.9% of the theoretical GST liability in 2018–19 leaving a net gap of 8.1% or $5.8 billion. Overall the gap is relatively stable, ranging from 6.9% to 8.2% through the trend period.

    Figure 5: Gross and net GST gap percentage, 2014–15 to 2018–19

    2014–15 Gross tax gap11.8%, Net tax gap 7.5%. 2015–16 Gross tax 11.8%, Net tax gap 8.2%. 2016-17 Gross tax gap 10.9%, Net tax gap 6.9%. 2017–18 Gross tax gap 10.9%, Net tax gap 7.3%. 2018–19 Gross tax gap 11.8%, Net tax gap 8.1%

    Note: Estimates of the GST gap for 2015–19 are updated as business activity statements are lodged or amended. The GST gap is also adjusted to account for revisions to external data sources, such as the Australian Bureau of Statistics.
    GST gap data remains one year in arrears due to the timing of the National Accounts data releases. The data for the reporting period 2019–20 relates to gap estimates in 2018–19.
    Net GST gap equals GST liabilities not reported plus non-pursuable debt. The gross GST gap (including debt) is obtained by adding the liabilities raised from ATO compliance activities to the net GST gap figure.

     

    Theoretical GST for 2018–19 is estimated to be $71.0 billion. This represents a 3.5% increase from the revised 2017–18 figure. The theoretical tax base for GST has two major components:

    • Taxable household consumption for 2018–19 increased by 3.2% compared to 2017–18. This represents a lower rate of growth than 2017–18 (4.3%).
    • New dwelling purchases (as indicated by gross fixed capital formation in dwellings data) in 2018–19 increased by 5.1% over 2017–18. This represents a slightly weaker growth rate compared to 2017–18 (6.1%), and the lowest observed growth rate in new dwelling purchases since 2013–14.

    GST paid was $65.3 billion for 2018–19. This represents a 2.6% increase from the revised 2017–18 figure. The components of GST paid comprises:

    • tax paid voluntarily – this increased by 2.4% to $62.6 billion in 2018–19
    • amendments – this increased by 6.1% to $2.6 billion in 2018–19.

    Figure 6: GST tax paid and net GST gap

    2018–19 $65.3 billion Tax paid, $5.8 billion Net gap. 2017–18 $63.6 billion Tax paid, $5.0 billion Net gap. 2016–17 $61.2 billion Tax paid, $4.5 billion Net gap. 2015–16 $57.5 billion Tax paid $5.1 billion Net gap. 2014–15 $54.9 billion Tax paid $4.5 billion Net gap.

    Australia’s GST gap compares favourably to similar international tax jurisdictions. Over a five-year timeframe, it is in line with the comparable best performing European Union member countries and aligns closely with the United Kingdom estimate.

    ATO action to reduce the GST gap

    Various taxpayer behaviours affect the gap. These range in severity from honest reporting errors to deliberate non-compliance.

    We work to minimise the GST gap and maximise voluntary compliance. Our balanced and targeted compliance program focuses on prevention, early engagement and assurance activities. These include:

    • analysing third-party data holdings, analytics and risk mitigation activities to identify and address non-compliance
    • preventing compliance issues before they arise, to foster voluntary compliance by supporting those that want to do the right thing and reduce mistakes
    • taking a firmer approach with those we detect deliberately evading their GST and other tax obligations
    • developing and exploring opportunities to improve the education, support and guidance we offer clients
    • engaging with Australia’s largest businesses to collect evidence that substantiates willing participation and provides assurance that they are paying the right amount of tax
    • continuing to integrate our work programs across all taxes, to deliver more effective and efficient risk management and enhance the taxpayer experience
    • addressing non-compliance through targeted programs such as the Black Economy Taskforce, to build community trust and confidence.

    GST voluntary compliance ratio

    The GST 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 the GST system and community confidence.

    Measuring the VCR

    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 remitted to us in accordance with the law for the financial year.

    Figure 7: VCR GST value and taxpayers 2014–15 to 2018–19

    2014–15 81.2% VCR-GST Value, 44.2% VCR-Taxpayers (strict), 80.9% VCR-Taxpayers (relaxed).
2015–16 80.7% VCR-GST Value, 42.5% VCR-Taxpayers (strict), 80.8% VCR-Taxpayers (relaxed). 2016–17 81.6 VCR=GST Value, 44.8% VCR-Taxpayers (strict), 79.2% VCR-Taxpayers (relaxed). 2017–18 82.3% VCR-GST Value, 43.8% VCR-Taxpayers (strict), 78.6% VCR-Taxpayers (relaxed). 2018–19 81.9% VCR-GST Value, 44.7% VCR-Taxpayers (strict), 82.7% VCR-Taxpayers (relaxed).

    VCR 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, suggesting the health of the system has been maintained.

    In 2018–19 we estimate that 44.7% of taxpayers were voluntarily complying, using our strict VCR test. This does not give any consideration to minor unintentional late payments or lodgments.

    The 2018–19 relaxed voluntary compliance at the taxpayer level increases to 82.7% 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 paid on time and without enforcement action has been stable over recent years. In 2018–19, this was equivalent to 81.9% of theoretical GST revenue.

    GST total revenue effects

    GST total revenue effects (TRE) measures the impact our activities have on improving taxpayer compliance. These activities ultimately improve levels of willing participation in the tax systems. Understanding and measuring the impact of our activities helps us to develop effective new strategies and improve existing ones. It is also a useful signpost of our shift in focus from ‘corrective’ to ‘preventative’ strategies which cannot be detected by measuring audit yield alone.

    TRE combines these factors:

    • Audit yield – the collection of liabilities, including penalties and interest, directly connected to adjustments we make as a result of our ‘downstream’ interventions. It is a combination of actual cash collections and estimates of collections based on sampling. Penalties, which is a small component of audit yield, are not distributed to the state and territory governments under the intergovernmental agreement.
    • Wider revenue effects – the estimated additional tax paid voluntarily by clients we influence, where there is a clear causal connection with our engagements.

    Figure 8: How the wider revenue effects and audit yield combine with our other activities to add to the total tax base

    Read in conjunction with Table 2. Total revenue effects: Wider revenue effects, Audit yield and Penalties and interest. Voluntary revenue: Voluntary payments and Wider revenue effects.
Tax base: Voluntary payments, Wider revenue effects and Audit yield.

    The TRE estimate for 2019–20 is $3.3 billion.

    Table 2: GST total revenue effects, 2017–18 to 2019–20

     

    2017–18

    $m

    2018–19

    $m

    2019–20

    $m

    Audit yield

    2,822

    2,652

    2,425

    Wider revenue effects

    861

    960

    848

    Total

    3,682

    3,612

    3,273

    GST assured

    GST assured is an indicator to help the ATO demonstrate its confidence in the GST system. It is an estimate of the proportion of GST reported that:

    • we are highly confident is correct
    • is based on the concept of justified trust.

    We achieve justified trust and consider tax to be assured when we have evidence that reporting of GST is complete and accurate.

    This is the first year of publication for GST assured. As inspection activities can extend beyond the financial year, GST assured has been estimated for the 2017–18 financial year. For this year, the ATO has assurance for 12% ($7.2 billion) of the $60.0 billion in net GST.

      Last modified: 30 Aug 2021QC 64820