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  • Summary findings

    In October 2018, we updated our estimates for goods and services tax (GST), wine equalisation tax (WET), fuel excise, pay as you go (PAYG) withholding, and fuel tax credits (FTC). Additionally, in November 2018 we updated the large corporate groups income tax gap. We are in the process of refreshing our estimates and anticipate the next updates will be published in October 2019.

    We continue working towards developing tax gap estimates for all of the taxes and programs we administer as part of the full tax gap program.

    The following is a summary of our latest gap estimates in alphabetical order (note that the latest data varies depending on the particular gap).

    • Fuel excise gap – the net fuel excise gap is estimated to be $326 million (1.9%) in 2015–16. The excise products covered in this estimation are concentrated in an industry with a small number of large taxpayers who we have generally observed to be highly compliant.
    • Fuel tax credits gap – the net fuel tax credits gap for 2016–17 is estimated to be –$19 million (−0.3%). This reflects our findings from random enquiries that suggest the under-claiming of fuel tax credits exceeds the over-claimed amounts. This result is consistent with previous estimate outcomes.
    • GST gap – the net GST gap estimate for 2016–17 has trended slightly downwards from previous years to $5.26 billion (7.9%). This fall is largely driven by a notable contraction in the contribution by taxable household consumption to the theoretical liability for the year. In other words, households are spending more money on GST free goods and services such as food, health and education. Australia ranks relatively well among similar nations that have estimated GST/VAT gaps.
    • Individuals not in business income tax gap – for 2014–15 we estimate a net tax gap of $8.76 billion (6.4%). Analysis shows the main components driving the gap include incorrect claims for deductions for work-related expenses and omitted income particularly in relation to undeclared cash wages. Another contributor is deductions for rental property expenses.
    • Large corporate groups income tax gap – in 2015–16, the net large corporate income tax gap is estimated to be $1.8 billion (4.4%). This gap has reduced over previous estimates. Part of this reduction is due to the inclusion of income tax assured through our engagement activities as part of our justified trust program. Further, we have refined and improved our methodology to include additional information and more accurately estimate our projected outcomes where we do not have complete information.
    • Large super funds income tax gap – in the 2015–16 year the net large super fund gap is estimated to be $127 million (1.5%). Analysis shows the main drivers of this gap are over claiming of the foreign income tax offset, incorrect application of CGT provisions and over claiming of franking credits.
    • PAYG withholding gap – the net PAYG withholding gap estimate for 2015–16 is $3.36 billion (1.9%). This suggests that employers are generally compliant with their withholding obligations. We estimate that employers are paying about 95% of the PAYG withholding they are required to without intervention from us.
    • Petroleum resource rent tax gap – in the 2015–16 income year, the net gap is estimated to be $18 million (2.0%). The main drivers of this gap relate to the inherent complexities of the law that underpins the PRRT system. In particular, disputes and disagreements regarding the interpretation of the application of the expenditure provisions in the Act.
    • Small business income tax gap – in the 2015–16 income year, we estimate the net gap to be $11.1 billion (12.5%). The main drivers of the small business income tax gap related to three main areas: not declaring all income, failing to account for the private use of business assets or funds and not sufficiently understanding small business tax obligations.
    • Small super funds income tax gap – for the 2014–15 year, we estimate the small super fund net tax gap to be $39.9 million (3.2%). The analysis shows main drivers of this gap to be a misunderstanding in the application of exempt current pension income (ECPI) provisions, incorrect reporting of franking credits and over-claimed deductions.
    • Super guarantee gap – for 2015–16, we estimate the super guarantee gap to be $2.79 billion. This represents 4.8% of the total estimated $56.77 billion in super guarantee employers were required to pay. In 2015–16, superannuation funds reported to us that employers paid $54.31 billion in super guarantee. This represents 95% of our adjusted theoretical super guarantee amount.
    • Tobacco tax gap – for the 2015–16 year, the net tobacco tax gap is estimated to be $594 million (5.6%). Our analysis indicates that sea and air cargo is the most significant source of detected illicit tobacco entering Australia.
    • Wine equalisation tax gap – in the 2015–16 WET estimate, we included the payable and refundable WET amounts to generate a net WET gap estimate. The net WET gap estimate for 2015–16 is $5 million (0.5%). This is consistent with our observations of compliance within the WET system.

    Our latest net gap estimates (both as a dollar value and percentage) are shown in the tables below. The tax reported and the reliability assessment of each estimate are also shown.

    Net tax gap estimates – direct and indirect taxes, latest available data

    Tax gap estimate

    Reliability assessment

    Financial year

    Tax paid
    ($m)

    Net gap
    ($m)

    Net gap
    (%)

    Fuel excise

    Medium

    2015–16

    16,891

    326

    1.9

    Goods and services tax

    Medium

    2016–17

    60,962

    5,264

    7.9

    Individuals not in business income tax

    Medium

    2014–15

    128,410

    8,761

    6.4

    Large corporate groups income tax

    Medium

    2015–16

    39,775

    1,833

    4.4

    Large superannuation funds income tax

    Medium

    2015–16

    8166

    127

    1.5

    Petroleum resource rent tax

    Medium

    2015–16

    845

    18

    2.0

    Small business income tax

    Medium

    2015–16

    77,398

    11,087

    12.5

    Small superannuation funds income tax

    Medium

    2014–15

    1,215

    40

    3.2

    Tobacco

    Medium

    2015–16

    9,928

    594

    5.6

    Wine equalisation tax

    Medium

    2015–16

    896

    5

    0.5

    Note:

    • We are in the process of refreshing our estimates and anticipate the updates will be published in October 2019.
    • All figures are rounded to the nearest $1 million.
    • Changes from previously published estimates are due to revisions to ABS data, updated ATO data and a modified approach to determining liabilities reported but not paid. The beer excise and duty gap estimate has been withdrawn due to identified issues with data.
    • Net gap percentage is calculated as net gap divided by estimated total tax with full compliance (that is, tax reported plus the gap).

    The net tax gap, as a dollar value and percentage, for each of our gap estimates for selected administered programs, for the latest year data is available, is in the table below.

    Net tax gap estimates – administered programs, latest available data

    Tax gap estimate  

    Reliability assessment

    Financial year

    Amount reported
    ($m)

    Net gap
    ($m)

    Net gap
    (%)

    Fuel tax credits

    Medium

    2015–16

    6,089

    −19

    −0.3

    PAYG withholding

    Medium

    2015–16

    173,481

    3,356

    1.9

    Superannuation guarantee

    Medium

    2015–16

    54,309

    2,790

    4.8

    Note:

    • We are in the process of refreshing our estimates and anticipate the updates will be published in October 2019.
    • All figures are rounded to the nearest $1 million.
    • Changes from previously published estimates are due to revisions to ABS data, updated ATO data and a modified approach to determining liabilities reported but not paid.
    • Net gap percentage is calculated as net gap divided by estimated total tax with full compliance (that is, tax reported plus the gap).

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      Last modified: 27 Aug 2019QC 53161