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  • 2. GST revenue performance

    Revenue collection

    Cash collections

    In 2020–21, net GST cash collections (excluding non-GIC penalties) were $73.1 billion, including net Department of Home Affairs collections of $4.8 billion. This was 22.0% (or $13.2 billion) above the 2020–21 Budget estimate of $59.9 billion and 4.7% (or $3.3 billion) above the revised budget estimate of $69.8 billion.

    The upward revision from the original Budget estimate to the revised Budget estimate was attributable to higher-than-expected collections as well as stronger economic forecasts for 2020–21. The final cash collections outcome for 2020–21 was higher than the revised estimate, largely due to very strong April and May 2021 activity statements.

    The 2020–21 cash outcome was 21.3% (or $12.8 billion) higher than in 2019–20, consistent with strong growth in household consumption and dwelling investment as the economy recovered from the impacts of COVID-19. An additional contribution to the increase in GST collections was related to 2019–20 COVID-19 deferrals that were paid during 2020–21.

    Cash collections and revenue accruals

    In 2020–21, net GST cash collections were $73.1 billion. However, net GST accrued on a tax liability method (TLM) was $72.6 billion. The TLM is defined as the earlier of the cash payment being received or the associated liability being recognised. The difference between net GST accruals and cash collections was −$0.5 billion and largely reflects 2019–20 deferrals relating to COVID-19 paid in 2020–21.

    The estimated total statement outcome for business activity statements (BAS) for June 2020 to May 2021 (BAS due in 2020–21) was $64.5 billion, $4.5 billion higher than the corresponding period in 2019–20. This was mainly due to strength in the wholesale trade, retail trade and manufacturing sectors. Partially offsetting these were lower GST payments from the accommodation and food services sector as well as higher refunds to the public administration sector.

    Table 1: Revenue outcome

     

    2016–17 $b

    2017–18 $b

    2018–19 $b

    2019–20 $b

    2020–21 $b

    Total GST revenue (accrual)

    61.8

    64.7

    66.7

    66.7

    72.6

    Total GST revenue (cash)

    59.8

    63.1

    65.2

    60.2

    73.1

    GST revenue Home Affairs cash (net)

    3.5

    3.9

    4.2

    4.2

    4.8

    Note: The total GST revenue amount excludes non-GIC penalties. GST accrual revenue is provided using the tax liability method (TLM). Under the TLM basis, GST revenue is defined as being the earlier of the cash payment being received or the associated liability being recognised.

     

    Figure 3: Revenue (cash) outcome

    This graph shows that the Collections growth increased in 2020–21 to $73.1m. Results for 2019–20 $60.2b, 2018–19 $65.2b, 2017–18 $63.1b, and 2016–17 $59.8b,

    Measurement and effectiveness

    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.

    Three of our performance measures (tax gap, voluntary compliance ratio and tax assured) are ‘lag indicators’ that tell us about GST performance in earlier years. The full impacts of COVID-19 will not be known for some time; we anticipate the full suite of our measures and business results for 2020–21 will show this.

    Total revenue effects, on the other hand, is a contemporaneous indicator that tells us about the impact of our work on GST revenue in 2020–21.

    GST gap

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

    In 2019–20 (the most recent year where data was available), the net GST gap is estimated to be $5.3 billion (7.8%). It is estimated that businesses paid more than 92% of the total theoretical net GST revenue payable in this year. The GST gap has trended down from 2015–16, but remained relatively steady over the past 3 years. The gap excluding debt was $3.6 billion (5.3%), with this gap declining since 2015–16. The gross gap (the gap before taxpayer compliance amendments), was $7.5 billion (11.2%) of theoretical net GST revenue.

    Figure 4: Gross and net GST gap (both with and without debt) percentageThis graph shows the GST gap from 2015–16 to 2019–20: 
2015–16 Gross gap 14.3%; net gap 10.2%, net gap (excluding debt) 9.2%
2016–17 Gross gap 12.85%; net gap 8.4%, net gap (excluding debt) 7.3%
2017–18 Gross gap 11.3%; net gap 7.8% net gap (excluding debt) 6.7%
2018–19 Gross gap 11.2%; net gap 7.8%, net gap (excluding debt) 6.6%
2019–20 Gross gap 11.2%; net gap 7.8%, net gap (excluding debt) 5.3%.
Note: GST gap data remains one year in arrears due to the timing of the National Accounts data releases.

    Note: Estimates of the GST gap are updated as BAS 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.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 2019–20 was $67.2 billion, representing a 3.7% decrease from the revised 2018–19 figure. Looking at 2 major components of the theoretical tax base for GST in detail:

    • Household consumption for 2019–20 declined by 4.2% compared to 2018–19. This reflects the impact of COVID-19, which resulted in the first decline in overall household consumption in more than 6 years and follows an extended period of strong growth (averaging around 3.5% over the previous 6 years).
    • New dwelling purchases (as indicated by gross fixed capital formation in dwellings) declined by 8.1% in 2019–20 compared to 2018–19, which was the lowest observed rate in new dwelling purchases since 2000–01.

    GST paid by business was $62.0 billion for 2019–20. This represents a 3.7% decrease from the revised 2018–19 figure.

    The components of GST paid in detail are:

    • tax paid voluntarily declined by 3.8% to $59.7 billion in 2019–20, due to lower consumption in the economy
    • amendments declined by 2.7% to $2.3 billion in 2019–20, a result of shifting the focus from our usual compliance programs to provide support to taxpayers due to the impacts of COVID-19.

    Figure 5: GST tax paid and net GST gap

    This graph shows the results for the GST voluntary compliance ratio at both the taxpayer level and GST-value level from 2015–16 to 2019–20. 
2015–16 Tax paid $57.5b, net gap $5.1b
2016–17 Tax paid $61.2b, net gap $4.5b
2017–18 Tax paid $63.6b; net gap $5.0b
2018–19 Tax paid $65.2b; net gap $5.8b
2019–20 Tax paid $62.0b, net gap $5.3b.

    While international comparisons are difficult due to different VAT/GST regimes (i.e. rates, base, turnover thresholds), Australia’s GST gap compares favourably with similar international tax jurisdictions. Over a 5-year timeframe, it is in line with comparable performing European Union member countries and the United Kingdom.

    ATO action to reduce the GST gap

    A range of taxpayer actions can affect the GST gap, including:

    • non-reporting of GST
    • under-reporting of GST
    • over-claiming of refunds
    • non-payment of GST liabilities.

    These behaviours range in severity from honest reporting errors to deliberate non-compliance. The failure of taxpayers to meet their obligations leads to:

    • reduced GST collected
    • reduced voluntary compliance
    • erosion of community confidence in the ATO
    • negative implications for a level business playing field.

    We are constantly working to minimise the GST gap and maximise voluntary compliance by addressing and influencing taxpayer behaviour. Our compliance programs usually have a balance of prevention, early engagement and assurance activities, and are targeted at those taxpayers and industries that are higher risk. These activities include:

    • analysing third-party data holdings, and conducting analytics and risk mitigation activities to identify and address non-compliance
    • preventing compliance issues before they arise, by supporting those that want to do the right thing and helping them reduce mistakes – through reminders, nudges, improved information on ato.gov.au and public advice and guidance
    • taking a firmer approach with those we detect deliberately evading their GST and other tax obligations
    • continuing to integrate our work programs across all taxes, to deliver more effective and efficient risk management and enhance the taxpayer experience.

    The financial year of 2019–20 was unusual for our compliance programs due to bushfires and COVID-19, with some of our compliance work paused for clients in areas affected by bushfires. Further, a number of compliance staff helped deliver the government's COVID-19 support and stimulus packages. Recognising that not all taxpayers and localities in Australia were impacted in the same way, we resumed our business-as-usual activities towards the end of the financial year where and when it was appropriate.

    We will continue to work towards closing the gap by:

    • implementing strategies under the GST compliance program
    • achieving GST compliance outcomes from ATO government-funded programs including the Shadow Economy, Serious Financial Crime and Phoenix Taskforces.

    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.

    Australian tax gaps – overview provides further information on the concept of tax gap, including why and how we measure them, and a summary of the latest available tax gap data.

    GST voluntary compliance ratio

    The GST voluntary compliance ratio (VCR) complements the GST gap by measuring the proportion of taxpayers fully compliant with the 4 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 2 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.
    VCR trends and latest findings

    Using our strict VCR test, we estimate that 29.7% of taxpayers were voluntarily complying in 2019–20. This does not include minor unintentional late payments or lodgments. The significant decline from 2018–2019 (which was estimated at 44.7%) recognises the impact of bushfires and COVID-19 on taxpayers meeting their obligations.

    The VCR increases to 78.3% by adjusting for:

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

    In making these adjustments, it is recognised 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. However, 2019–20 saw a decline in the VCR by value to 74.6% of theoretical GST revenue as a result of the 2019–20 summer bushfires and impacts of COVID-19.

    While the bushfires and COVID-19 impacted taxpayers lodgment and payment compliance, our approach to support them during this difficult period enabled them to stay in the tax system and eventually report their GST obligations – good for the GST gap and system in the longer term.

    Figure 6: VCR GST value and taxpayers 2015–16 to 2019–20

    This graph measures the proportion of taxpayers fully compliant with the 4 pillars of compliance.
2015–16 VCR - GST value 80.7%, VCR - taxpayers (strict) 42.5%, VCR - taxpayers (relaxed) 80.8%
2016–17 VCR - GST value 81.6%, VCR - taxpayers (strict) 44.8%, VCR - taxpayers (relaxed) 79.2%
2017–18 VCR - GST value 82.3%; VCR - taxpayers (strict) 43.8%, VCR - taxpayers (relaxed) 78.6%
2018–19 VCR - GST value 81.9%; VCR - taxpayers (strict) 44.7%, VCR - taxpayers (relaxed) 82.7%
2019–20 VCR - GST value 74.6%, VCR - taxpayers (strict) 29.7%, VCR - taxpayers (relaxed) 78.3%.

     

    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 system. 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 the following:

    • Audit yield – the collection of liabilities, directly connected to adjustments we make as a result of our ‘downstream’ interventions, including prompted lodgment. The tables below provide 2 versions of audit yield: liabilities including penalties and interest, and liabilities excluding penalties and interest. Penalties are a small component of audit yield and are not distributed to the states and territories under the intergovernmental agreement.
    • Wider revenue effects (WRE) – represents an estimate of the additional voluntary tax paid, generated through our engagements with taxpayers. To be considered part of the WRE, there needs to be a clear connection with our work and the tax paid.

    TRE is a contemporaneous indicator that tells us the impact our work had on tax revenue in 2020–21. As such, TRE has 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.

    Figure 7: How the wider revenue effects and audit yield combine with our other activities to add to the total tax baseA diagram depicting how the wider revenue effects and audit yield combine with our other activities to add to the total tax base.

    Through our compliance activities, we raised $3.1 billion in liabilities (excluding penalties and interest) and wider revenue effects for GST in 2020–21. This resulted in total revenue effects of $2.6 billion (excluding penalties and interest).

    Table 2: GST Total liabilities raised, 2018–19 to 2020–21

     

     

    2018–19 $m

    2019–20 $m

    2020–21 $m

    Excluding penalties and interest

    Liabilities

    3,164

    2,645

    2,339

    Wider revenue effects

    960

    848

    796

    Liabilities raised

    4,124

    3,493

    3,135

    Including penalties and interest

    Liabilities

    3,386

    2,827

    2,798

    Wider revenue effects

    960

    848

    796

    Liabilities raised

    4,346

    3,675

    3,594

    Table 3: GST total revenue effects, 2018–19 to 2020–21

     

     

    2018–19 $m

    2019–20 $m

    2020–21 $m

    Excluding penalties and interest

    Audit yield

    2,573

    2,291

    1,835

    Wider revenue effects

    960

    848

    796

    Total

    3,533

    3,139

    2,631

    Including penalties and interest

    Audit yield

    2,652

    2,425

    1,883

    Wider revenue effects

    960

    848

    796

    Total

    3,612

    3,273

    2,679

    The WRE amount for compliance engagement work is predominantly due to audits and reviews and our lodgment program. Around $370 million of the WRE related to lodgment engagement work, while $425 million related to risk engagement work. The small business client experience accounted for $317 million, and privately owned and wealthy groups accounted for $361 million.

    Preventing compliance issues before they arise and supporting those who do the right thing are expected to contribute to WRE more over time, as we shift our focus to preventative methods, including:

    • reminders
    • marketing communications
    • improved information on ato.gov.au
    • public advice and guidance
    • online nudges.

    GST assured

    GST assured is:

    • an estimate of the proportion of GST in which we have high confidence is correctly reported
    • based on the concept of justified trust.

    GST assured is an indicator to help the ATO demonstrate confidence in taxpayer behaviour and the GST system, by highlighting strengths and identifying potential threats.

    We achieve justified trust and consider tax to be assured when we have evidence that reporting of GST is complete and accurate. Data is collected from a range of sources such as third parties, and is used to verify the information taxpayers report to us.

    For businesses (particularly larger businesses), we primarily assure tax by reviewing objective evidence obtained through one-to-one engagements. GST results are primarily driven by public and multinational businesses, where we provide assurance on a case-by-case basis. There was $2.6 billion of GST assured in the public and multinational businesses in 2018–19.

    We expect the percentage of GST that will be assured will increase between 2019 and 2023 as a result of the justified trust funding attached to the GST compliance program.

    In practice, we cannot gather third-party data or other information to compare against all GST reported on the BAS. As such, our tax assured estimates will always be lower than the real amount of tax that is correctly reported. Where we cannot gather information to assure tax, we rely on our broader risk management approaches to provide us with confidence over the rest of the total tax reported.

    It is estimated that 4.6% of total GST reported could be assured for 2018–19 (the most recent year that estimates can be made). In dollar terms, the ATO has assured $2.8 billion of GST revenue compared to the total net GST BAS outcome of $60.9 billion.

    The decline from 2017–18 is tolerable, and is due to a change in our assurance approaches for clients we engage directly with. This has resulted in improvements in estimating how much GST we are assured is correctly reported.

    Table 4: GST assured and the equivalent tax base 2016–17 to 2018–19

     

    2016–17

    2017–18

    2018–19

    GST assured ($m)

    709

    4,508

    2,782

    Net GST BAS outcome ($m)

    58,197

    60,173

    60,919

    Percentage assured (%)

    1.2

    7.6

    4.6

      Last modified: 07 Feb 2022QC 67817