• Entities

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    The proportion of business entities registered for gst

    Purpose

    To observe the trend in the registration for the goods and services tax (GST) over time by businesses required to be registered.

    Results

    Chart 9: Proportion of entities registered for GST

    Chart 9

    Table 7: Proportion of entities registered for GST

     

    2003 - 04

    2004 - 05

    2005- 06

    2006 - 07

    2007 - 08

    2008 - 09

    2009 - 10

    Rate of GST registrations

    96%

    96%

    96%

    95%

    96%

    96%

    N/A

    * From 2007-08 onwards this indicator uses the revised thresholds for GST registration of $150,000 for non- profit entities and $75,000 for most other entities.

    N/A - As the design for this indicator compares registration to income tax lodgment, the 2009-10 figure will not be available until 2011-12.

    Apart from the small increase in 2007-08, which reflects the change in the turnover threshold for registration, the trend of this measure, which compares income tax return data to GST data, has been relatively steady and suggests that there is a good level of taxpayer participation in the GST registration system. The impact of the threshold change reflects that the registration rate for entities close to the threshold is lower than for the rest of the population. As such, removing the requirement to register for these entities had a positive effect on the indicator.

    An analysis of the registration rate by entity type indicates that the trend has again been relatively stable over time. The registration rate for companies is the highest at around 98%, with Individuals running businesses as sole traders having the lowest at just over 90%. The change in threshold mainly impacted the individual rate, increasing it by over 1%.

    Reliability

    This indicator is deemed to have a medium level of reliability. The methodology has had minimal changes over time, but it does require businesses to lodge and accurately report business income in their tax returns. The measure can be highly influenced by policy and administrative changes, such as the impact from the change in the threshold.

    Methodology

    This indicator is the proportion of business entities registered for GST. The GST is charged on the supply of most goods, services and other transactions. The ATO requires an entity which is carrying on a business to register for GST where the entities turnover is over a certain threshold. Regardless of turnover, an entity must also register for GST if they provide taxi services.

    The rate of GST registrations for each income year is derived by using income tax return information to estimate the population required to be registered and then checking to see if these entities were either issued a Business Activity Statement (BAS) or a non reporting entity of a GST group. By using this methodology businesses which are deemed to be voluntarily registered for GST were excluded from the analysis.

    Most entities were deemed to be required to register for GST if their turnover was at least $50,000 ($100,000 for not for profits). From 2007-08 this threshold increased to $75,000 ($150,000 for not for profits). All entities which operate a taxi cab are required to register for GST, regardless of their turnover.

    Qualifications

    In estimating the registered population, the turnover was calculated using the income tax definition for business income. As there are slight differences between definition of turnover for income tax purposes and turnover for GST, a small number of entities may have been incorrectly included or excluded in our population. For example, share traders which are input taxed, can have high levels of income although they may not be required to register for the GST. Including these entities has the effect of understating effectiveness.

    The income tax population was confined to those returns lodged within 12 months of the end of an income year, primarily to enable timelier updating of the indicator. While changes in lodgment patterns can influence the measure, the registration rate for entities who lodged between 12 and 24 months after the income year is broadly consistent to the rate for entities lodged within 12 months. As such restricting the population does not affect analysis of the trend over time.

    The proportion of bas lodged on time

    Purpose

    To observe the trend in on time lodgments of a Business Activity Statement (BAS) by entities over time.

    Results

    Chart 10: Proportion of BAS lodged on time

    Chart 10

    Table 8: Proportion of BAS lodged on time

     

    2003 - 04

    2004 - 05

    2005- 06

    2006 - 07

    2007 - 08

    2008 - 09

    2009 - 10

    On time lodgment of BAS

    78%

    78%

    79%

    78%

    77%

    76%

    75%

    The trend for the proportion of BAS statements lodged on time has declined over the period. While this decline has been primarily driven by the lodgment performance of taxpayers who lodge quarterly, there was also a decline in 2009-10 by taxpayers who lodge monthly. The decline in the trend over time has been identified by the ATO as an area of concern and additional resources have been provided by State and Territory, and Federal Governments to target this issue. However it does coincide with a softening of economic conditions.

    Reliability

    This indicator is deemed to have a low to medium level of reliability. The methodology has had minimal changes over time, however the measure can be influenced by policy and administrative changes, such as lodgment concessions.

    Methodology

    This indicator is the proportion of BAS lodged on time. Entities lodge a BAS to provide the ATO with details on a number of business tax obligations, including GST, PAYGW and fringe benefits tax (FBT).

    The indicator was derived by comparing the number of BAS that have been issued to the number of BAS lodged on time. If a business returns a BAS which details that the business had no activity for that period ("a nil BAS"), this BAS is still classified as being issued and lodged for that particular period.

    For the purpose of this indicator, a BAS is considered to be on time if it is lodged with the ATO within seven days of the due date. This is to allow for postage delays.

    Qualifications

    This indicator examines the on time lodgment for all monthly and quarterly activity statements issued for a particular income year. For example the indicator examines all statements for the 2009-10 income year (statements for the period from July 2009 to June 2010 which are due to be lodged in the period from August 2009 to July 2010). The indicator treats each statement issued as a unique event and does not measure the performance of an entity over the income year. That is, if we have two entities which both lodge monthly, and say one lodges all BAS on time, while the other only lodges 50% of their BAS on time, the lodgment performance is 75% (18/24) overall, rather than 50% (1/2).

    Annual BAS lodgments were excluded from this analysis due to variations in due dates and significant time lags between the issue and lodgment dates. Only a relatively small number of businesses report annually.

    The indicator does not measure whether the information contained in the activity statement is correctly reported or whether any liabilities arising from the lodgment were paid.

    The variation in gst revenue reported

    Purpose

    To observe the growth in GST revenue compared with the growth in an external measure of consumption and expenditure subject to GST.

    Results

    Chart 11: Growth in GST revenue compared to growth in estimated consumption and expenditure subject to GST. Index basis (2000-01 - base year).

    Chart 11

    While the two measures broadly track in the same direction, this may be reflecting changes in the overall economy, rather than improvements in reporting. While GST is a tax based on consumption, the two indexes are too broad to state that any changes directly relate to reporting performance. Clearly we do not collect more GST than we should, so the likely discrepancy is in the assumptions that we have made. More work is needed and we would welcome any suggestions. These issues contribute to the level of reliability of this indicator being low. This is a salutary remainder that at this stage of their development (here and overseas), broad based macro measures have serious shortcomings.

    Reliability

    This indicator is deemed to have a low level of reliability. While data quality is reasonable, there are some changes made to the base data over time, and within each broad consumption category the proportion subject to GST is constant over time which may not reflect changes in consumption patterns within each broad group.

    Methodology

    This indicator is the trend in growth for each data source shown as an index, using 2000-01 as the base year, which was the first year of the GST. This indicator attempts to provide a guide to level of the compliance by entities to correctly reporting GST.

    GST revenue was sourced from the Final Budget Outcome for 2009-10 or Budget 2010-11, Budget Paper No. 1, Statement 5, Appendix C.

    The consumption and expenditure subject to GST was derived from household final consumption expenditure (HFCE) data which was sourced from the ABS. HFCE measures current expenditure by households and non-profit institutions serving households, some of this consumption is not subject to GST.

    Most of the data comes from table 8 of the ABS Publication 5206.0 - Australian National Accounts: National Income, Expenditure and Product June 2010, with adjustments to remove elements which are not subject to GST. These adjustments are held constant across the years and are based on ATO analysis of consumption at a finer level, which is not available on annual basis.

    As GST is also applied on private dwelling investment and ownership transfer costs additional information is sourced from table three of the ABS publication 5206.0 - Australian National Accounts: National Income, Expenditure and Product June 2010.

    An index for each series was calculated using 2000-01 as the base year (that is, 2000-01 = 100). The trend for both series is then compared.

    Qualifications

    The two data sets while related are not directly comparable and are too broad to accurately reflect any changes in the GST reporting performance of entities.

    As the proportions of items not subject to GST are assumption based the overall estimate is sensitive to these assumptions and may be overstated or understated as a result. Work is continuing to verify the appropriateness of these assumptions.

    The proportion of business tax liabilities paid on time

    Purpose

    To observe the trend in business tax liabilities paid on time.

    Results

    Chart 12: Proportion of business tax liabilities paid on time by value and number

    Chart 12

    Table 9: Proportion of business tax liabilities paid on time by value and number

     

    2003 - 04

    2004 - 05

    2005- 06

    2006 - 07

    2007 - 08

    2008 - 09

    2009 - 10

    On time by value

    90%

    89%

    88%

    86%

    86%

    88%

    88%

    On time by number

    82%

    80%

    78%

    76%

    75%

    74%

    73%

    The trend for liabilities paid on time by value and number has decreased over the period. The decline in the trend over time has been identified by the ATO as an area of concern and additional resources have been provided by State and Territory, and Federal Governments to target this issue. These additional resources, while not having a significant impact on the on time performance, have ensured that payment by 30 June of the relevant year has been maintained at around 97%. It is noted that since 2003-04 the number of transactions has increased by over 25%, with liabilities increasing by over 30 percent.

    The deteriorating trend, especially since 2006-07 could reflect economic conditions. The ATO's focus on higher value debts shows an increasing positive trend on the value of activity statement liabilities paid on time since 2006-07.

    Reliability

    This indicator is deemed to have a low to medium level of reliability. There has been minimal changes in methodology over time, is based on reasonably accurate data and is calculated with minimal bias. The comparison between on time and timely payment reflects the ATO's ability to identify the instances of late payment and to engage with these entities to pay any outstanding liabilities.

    Methodology

    This indicator is the proportion of business tax (GST, PAYGW and FBT) liabilities paid on time. Entities lodge a BAS to provide the ATO with details on a number of business tax obligations, including the GST, PAYGW and FBT. Liabilities are generally raised after the lodgment of a BAS or an excise return. Liabilities may also be raised as a result of the lodgment of an amended return or as a result of compliance activity. For businesses that remit PAYW withholding on a weekly or fortnightly basis, the payment generates the liabilities.

    This indicator was derived by determining the value and number of liabilities raised and due for payment by 30 June. As businesses are required to pay when lodging the BAS, the payment due date is the date the liabilities were raised. This may not necessarily be the date that the lodgment was due.

    The accounting system used to track BAS transactions using a running balance structure where debit and credit transactions are not directly linked. To determine the balance outstanding for a liability and the timing of transactions relating to these liabilities an attribution approach is used. This attribution approach matches debit and credit transactions where possible, however for some transactions no links can be identified. When this occurs the remaining credits are applied to the oldest outstanding liability first. Where multiple liabilities are of the same age, the receivables policy is used to determine priority. All applicable payment, refund, credit adjustment (amendment and remission) or write-off transactions were used to determine the balance outstanding for each liability.

    If after attribution there is still some of the liability outstanding, that liability is deemed to be not paid.

    As liabilities may have multiple transactions attributed to them in order to determine the balance outstanding, the date of the latest transaction was used to determine payment timeliness.

    Both of these adjustments decrease the on time rates, however these adjustments ensure that the entire liability is "paid" by the due date and analysis suggests that including part payments increases the rates only marginally (less than 0.1%) and is consistent from year to year.

    Qualifications

    Only transactions which result in a liability that was payable by 30 June each year were included in the population and no exclusions where made for transactions involving liabilities which are being disputed or involved in insolvency action.

    As the measure was determined at a transaction level rather than the taxpayer level, the indicator using number of transactions may be distorted to some extent. That is, if we have two entities, one lodges quarterly resulting in 12 liability transactions a year (4 BAS with a GST, FBT and PAYGW liability on each BAS of $1,000), while one lodges monthly resulting in 36 liability transactions a year (12 BAS with a GST, FBT and PAYGW liability on each BAS of $250), both taxpayers are required to pay $12,000.

    If the quarterly taxpayer is late with the payment for all liabilities, while the monthly taxpayer pays on time, the on time rate on a value basis is 50% while the on time rate on a numerical basis is 75%. Conversely if the quarterly taxpayer is on time with the payment for all liabilities, while the monthly taxpayer pays late, the on time rate on a value basis remains at 50% while the on time rate on a numerical basis reduces to 25%.

    In measuring this indicator, the timeliness of the lodgment which created the liability was ignored.

      Last modified: 25 Feb 2011QC 24195