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  • Total revenue effects measure – impacts of our engagement activities

    We develop indicators to monitor and understand the impacts of our activities on the performance and operation of the tax and superannuation system.

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    Total revenue effect

    Total revenue effect is a measure of the impact our activities have on improving taxpayer compliance. These activities ultimately improve levels of willing participation with the tax and superannuation systems.

    This measure provides a useful signpost of our shift in focus from ‘corrective’ to ‘preventative’ strategies.

    We can't detect these results by measuring audit yield alone. Understanding the impact of our activities helps us improve and develop effective strategies.

    The total revenue effects measure is an estimate of the additional tax revenue that comes from our client engagement activities. It is the combination of both:

    We can use total revenue effects to measure the ongoing impact of our client engagement activities. This is in terms of both changed behaviour and improved tax receipts.

    Audit yield

    Audit yield is a measure of the collection of specifically identified liabilities raised from our audit and enforcement activities. These liabilities are directly connected to the adjustment we make, and payment can occur after we conduct the audit. It also includes interest and penalties.

    Wider revenue effects

    Wider revenue effects are an estimate of the additional tax paid by clients we influence. They represent improved voluntary compliance rather than an adjustment of a particular amount.

    When measuring wider revenue effects, we ensure there is a clear causal connection between our activity and the change in taxpayer behaviour. This connection, and any assumptions that underpin it, must be reasonable, defensible and explicit.

    Wider revenue effects may include:

    • preventative activities (designed to assist or encourage clients to pay the right amount of tax)
    • corrective activities (other than those captured by audit yield) designed to encourage clients to review and amend their previous reporting
    • process changes making it easier for clients to comply
    • improvements to compliance in the periods following a preventative or corrective activity (including an audit)
    • spill-over or ripple effects on the broader population as a result of our broad communications or knowledge of our activities with other clients.

    Both audit yield and wider revenue effects are reported on a cash rather than accrual basis. This applies to a given ATO activity when the additional revenue is paid by the taxpayer.

    What the measures are telling us

    Our current methods are designed to estimate the revenue effects of improvements to compliance in the periods following our engagement with clients and their agents (including corrective and preventative work).

    We estimated our 2017–18 total revenue effects to be $16.0 billion, which includes a wider revenue effect of $4.2 billion.

    Total revenue effects

    Annual report

    Audit yield

    Wider revenue effects

    Total revenue effects

    2016–17

    $10.2b

    $4.8b

    $15.0b

    2017–18

    $11.8b

    $4.2b

    $16.0b

    The measures tell us that many of our engagements result in an increase in the average tax performance of the clients we engage with – relative to their peers we have not engaged.

    Key activities

    We attribute much of our wider revenue effects estimate to several key activities including:

    Methodologies

    Methods for estimating wider revenue effects are reviewed and updated each year with the latest information. New and improved techniques have been implemented to broaden the coverage of our preventative and corrective taxpayer engagements while maintaining robust and defensible estimates.

    We use two approaches to estimate total revenue effects:

    1. One-to-one engagements – these estimates are generally based on primary sources of client information. They are derived from the audit approach to measurement. This approach is typically used to calculate audit yield and estimate the revenue effects for small groups of taxpayers with high incomes and few comparable peers.
    2. Statistical estimates – these estimates are generally based on our analysis of operational data. Methods used are defensible in line with Organisation for Economic Co-operation and Development (OECD) recommendations including the use of randomised control trials and statistical techniques to estimate the impact of our client engagements. Statistical approaches are typically used to estimate the revenue effects for larger groups of taxpayers with lower incomes and many comparable peers.

    Limitations

    Measuring wider revenue effects is challenging. There are some technical limitations involved in establishing defensible causal connections between our engagements with taxpayers and subsequent improvements to voluntary compliance. Even where a causal connection is established, it is difficult to understand and identify where our activities resulted in a revenue effect outcome, or where the revenue outcome was because of an external factor unrelated to us. Therefore, there are a number of strategies and products we do not yet estimate a wider revenue effect for, including:

    • the small business newsroom and the cash-flow coaching kit – help businesses succeed and give them timely information
    • our help services (including this website) – used by millions of taxpayers to understand and meet their obligations
    • tailored advice, private and public rulings we provide to taxpayers on specific issues (although from time to time we can quantify the impact of these interactions for a very small subset of these).
      Last modified: 26 Oct 2018QC 53795