Fuel excise tax gap 2019-20
This information is for historical purposes only. If you require previously published content for past estimates, please email taxgap@ato.gov.au.
This estimate for the fuel excise tax gap relates to the 2019-20 financial year.
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This gap forms part of our overall tax performance program.
For the 2019–20 year we estimate a net gap of 2.0% or $375 million. In other words, we estimate that around 98% of the total theoretical tax liability was paid.
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Trends and latest findings
The fuel excise tax gap is estimated to be $375 million in 2019–20 or 2.0% of total theoretical liability. Over the period 2014–15 to 2019–20, the estimated net fuel excise tax gap has been fluctuating at low levels between 0.5% and 2%.
The fuel excise gap has historically been very low, and at such low levels, we consider volatility from year-to-year as noise from a statistical estimation instead of signalling any change in underlying changes in compliance. At 2%, the net gap estimate is within our confidence interval.
Table 1 shows the excise and duty reported, amendments and the gross and net fuel excise gap estimates from 2014–15 to 2019–20.
Table 1: Fuel excise tax gap, 2014–15 to 2019–20
Element
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
2018–19
|
2019–20
|
Gross gap ($m)
|
174
|
325
|
315
|
261
|
85
|
375
|
Amendments ($m)
|
10
|
0
|
0
|
1
|
0
|
0
|
Net gap ($m)
|
164
|
325
|
315
|
260
|
85
|
375
|
Excise and duty reported ($m)
|
16,662
|
16,891
|
17,416
|
18,437
|
18,685
|
18,729
|
Theoretical liability ($m)
|
16,826
|
17,216
|
17,732
|
18,697
|
18,771
|
19,105
|
Gross gap (%)
|
1.0
|
1.9
|
1.8
|
1.4
|
0.5
|
2.0
|
Net gap (%)
|
1.0
|
1.9
|
1.8
|
1.4
|
0.5
|
2.0
|
Figure 1: Net fuel excise tax gap as a percentage of total theoretical liability, 2014–15 to 2019–20
ATO action to reduce the gap
Regulation through licensing and permission regimes is a significant control over the fuel industry. The fuel market is dominated by a small number of businesses who contribute the majority of fuel excise revenue. We support our larger clients with client managers who provide help and assurance for compliance obligations.
Compliance with timely lodgment, payment and reporting is a key risk in the current environment. Our client managers monitor these risks for the highest payers to understand variations and co-ordinate corrective action where necessary.
New entities entering the fuel market can increase the risk of error if existing control systems are inadequate. They can also pose a risk if they do not understand their obligations. Our 'New to Excise' program assists new entities to understand and meet their obligations.
Biannual indexation on all fuels (except aviation fuel) and policy changes such as the reintroduction of excise on ethanol and biodiesel are unlikely to increase the risk of error significantly. Meanwhile, we have strategies in place to detect and monitor non-compliance in these areas.
We focus our activities on early identification of compliance issues. Our compliance activities have not identified any new issues or areas for concern.
Our key activities include:
- monitoring of available data to identify changes in behaviour or trends
- providing new entrants to Excise, education and early intervention to ensure they meet their compliance obligations
- assurance activity on key parts of the industry
- relationship management support and engagement with large market clients.
Methodology
The fuel excise tax gap estimate is derived through applying a top-down method. There are five steps in applying the top down methodology to estimate the fuel excise tax gap. These steps are explained below, followed by a summary of the overall estimate:
Step 1: Estimate the total volume available
We estimate the excisable volume available in this order:
- estimate the volume imported
- add the volume produced in Australia
- remove the volume exported from Australia
- add the volume held in inventory at the end of the previous financial year
- remove the volume held in inventory at the end of the current financial year
- remove the volume not subject to excise.
Step 2: Estimate average excise rates each year
Next, we estimate the average excise rates.
Step 3: Estimate theoretical excise liability amounts
We multiply the total volume available by the average excise rate to calculate the total theoretical excise liability.
Step 4: Calculate the fuel excise tax net gap
We subtract ATO fuel excise revenue on an accrual basis using an economic transaction method (ETM) from the total theoretical excise liability to yield the net gap.
Step 5: Calculate the fuel excise tax gross gap
We calculate the fuel excise tax gross gap by adding our compliance results to the net gap. Compliance outcomes are calculated by taking our compliance case results and allocating them to specific financial years on an accrual basis. The total excise compliance outcomes are apportioned using the percentage of total excise revenue attributable to petrol, diesel, ethanol, biodiesel and associated blends.
Summary of the estimation process
Table 2 displays the methodology and dollar amounts for the steps used to estimate the fuel excise tax gap, and the percentage figures for the gross and net gaps.
Table 2: Applying the methodology – fuel excise tax gap
Step
|
Description
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
2018–19
|
2019–20
|
1 to 3
|
Total theoretical excise liability ($m)
|
16,826
|
17,216
|
17,732
|
18,697
|
18,771
|
19,105
|
4.1
|
Less actual excise reported ($m)
|
16,652
|
16,891
|
17,416
|
18,437
|
18,685
|
18,729
|
4.2
|
Equals fuel excise tax net gap ($m)
|
164
|
325
|
315
|
260
|
85
|
375
|
5.1
|
Add compliance outcomes and taxpayer adjustments ($m)
|
10
|
0
|
0
|
1
|
0
|
0
|
5.2
|
Equals fuel excise tax gross gap ($m)
|
174
|
325
|
315
|
261
|
85
|
375
|
5.3
|
Gross gap (%)
|
1.0
|
1.9
|
1.8
|
1.4
|
0.5
|
2.0
|
5.4
|
Net gap (%)
|
1.0
|
1.9
|
1.9
|
1.4
|
0.5
|
2.0
|
Limitations
Although the gap methodology is reliable, it does not account for variations due to temperature correction, timing and certain adjustments.
There could be errors stemming from non-standard measurement practices for the volumes of fuel products. Given that the volumes of fuel products would vary with temperature, they should always be measured at 15 degrees Celsius to maintain a consistent benchmark. However, Australian Petroleum Statistics volumes may be measured at different temperatures. Survey respondents are not given instructions to correct fuel volumes to 15 degrees Celsius.
A timing difference could arise between when product sales data are reported for compilation in the Australian Petroleum Statistics and when excise data enters our systems.
Assumptions around related volumetric calculations may also have an impact.
Updates and revisions to previous estimates
Each year we refresh our estimates in line with the annual report. Changes from previously published estimates occur for a variety of reasons, including:
- improvements in methodology
- revisions to data
- additional information becoming available.
Figure 2: Current and previous published net fuel excise tax gap estimates, 2014–15 to 2019–20
The changes are set out in Table 2 and shown as a percentage.
Table 2: Current and previous published net fuel excise tax gap estimates (percentage), 2010–11 to 2019–20
|
2010–11
|
2011–12
|
2012–13
|
2013–14
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
2018–19
|
2019–20
|
2015 Program
|
0.8
|
n/a
|
1.9
|
1.6
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
2016 program
|
0.5
|
0.5
|
2.4
|
2.2
|
0.8
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
2017 program
|
0.6
|
0.6
|
2.5
|
2.1
|
1.1
|
1.9
|
n/a
|
n/a
|
n/a
|
n/a
|
2018 program
|
n/a
|
0.6
|
2.5
|
2.1
|
1.0
|
1.9
|
1.9
|
n/a
|
n/a
|
n/a
|
2019 program
|
n/a
|
n/a
|
2.5
|
2.1
|
1.0
|
1.9
|
1.9
|
1.3
|
n/a
|
n/a
|
2020 program
|
n/a
|
n/a
|
n/a
|
2.1
|
1.0
|
1.9
|
1.9
|
1.3
|
0.5
|
n/a
|
2021 program
|
n/a
|
n/a
|
n/a
|
n/a
|
1.0
|
1.9
|
1.8
|
1.4
|
0.5
|
2.0
|
Reliability
We seek feedback and advice about the methods we use to estimate the gap from our external and internal subject matter experts. Based on the advice and assessment, the reliability rating for this estimate is high (with a score of 21).
The main data source is an external survey of large-scale petroleum and diesel producers. Small producers are not covered through this survey. Their market share is negligible given the low number of overall participants in the fuel industry.
Our activities confirm high levels of compliance overall. However, assumptions around the volumetric calculations may have an impact. Although there are some reservations about the data, the methodology employed is robust.
Figure 3: Reliability rating scale from very low to very high – fuel excise tax gap
This estimate for the fuel excise tax gap relates to the 2019-20 financial year.