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  • Why we measure the tax gap

    Estimating tax gaps forms part of our broader accountability and transparency as a leading administrator. It is consistent with contemporary international best practice in tax administration.

    Australians all benefit from healthy tax and superannuation systems that support our society and economy. The community expects us to manage all aspects of the system, including advising on the tax gaps and what we are doing about them. As such, we measure and publish tax gaps, where they are credible and reliable, to inject our perspective into the community debate.

    Tax gap estimates are also important for us to better understand levels of compliance and risk in the tax and superannuation systems, to inform our resource allocation, and to assess the effectiveness of our work over time.

    Tax gaps are an indication of the system in operation. The insights gained from this analysis guide us in determining priority risks and development of strategies, including administrative design, help and education, and audit strategies.

    Tax gaps internationally

    Other administrations also measure tax gaps, including:

    • United Kingdom – Her Majesty’s Revenue and Customs (HMRC)
    • United States – Internal Revenue Service (IRS)
    • Danish Customs and Tax Administration (SKAT)
    • Canada Revenue Agency.

    The European Commission (EU) uses external researchers to identify the value-added tax (VAT) gap in each of its 28 member countries. This establishes trends over time. The International Monetary Fund (IMF) provides support to jurisdictions in estimating tax gaps.

    Our gap measurement methodologies draw on the experience of the above contemporary administrations. This ensures our estimations meet best practice. We share our tax gap information with our counterparts in HMRC and the IRS. We also participate in international forums and communities of practice.

    Addressing the gap

    Our focus on prevention (before correction) influences the gross tax gap and drives it down. To focus just on correction would influence the net gap only.

    We take this into consideration as we continue to refine and develop the range of strategies we employ to manage tax gaps.

    Our primary strategy is to make it as easy as possible for Australians to comply with their tax obligations. We look at this from many perspectives:

    • enhancing our digital services
    • improving our processes and technology, including our data-matching capability
    • providing advice to government, via the Treasury, where we see law reform options
    • working with partner agencies and stakeholders to improve the tax and superannuation systems
    • providing guidance and advice to clarify areas of uncertainty, including issuing Taxpayer alerts if we see potential risks
    • dealing with non-compliance, including investigating aggressive tax planning.

    How to use the estimates

    The tax gap estimates should be viewed as trends over time, in conjunction with our performance measures. The dollar value is indicative rather than definitive.

    All estimates have a margin of error, which may not be quantifiable. The estimates are subject to limitations and caveats that need to be considered when using them and drawing conclusions. These limitations are explained in Principles and approaches to measuring gaps.

    Care should be taken when results are aggregated. This is to avoid double counting and ensure alignment of reporting years. In principle, administered programs cannot be aggregated with other measures. Until we achieve full release of the tax gap program, different financial year gap timing impacts can influence the results. The differences between the definitions of gap populations or reporting definitions can also make these measures difficult to reconcile with other measures.

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      Last modified: 27 Aug 2019QC 53161