Show download pdf controls
  • Goods and services 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 goods and services tax (GST) gap relates to the 2019-20 financial year

    On this page

    This gap forms a part of our overall tax performance program.

    GST is a consumption tax of 10% on most goods, services and other items sold or consumed in Australia, including imported goods, service and digital products. GST started in Australia in July 2000. Since then, there has been no change to the 10% GST rate.

    Generally, businesses and other organisations registered for GST will:

    • include GST in the price they charge for their goods and services
    • claim credits for the GST included in the price of goods and services they buy for their business.

    For 2019–20, we estimate the GST net gap to be $5.3 billion or 7.8% of total theoretical GST revenue. In other words, we estimate that businesses paid over 92% of the total theoretical GST revenue payable in 2019–20. The gross gap (the gap before taxpayer compliance amendments) was $7.5 billion or 11.2% of total theoretical GST revenue.

    See more about:

    Trends and latest findings

    The net GST gap estimate has ranged between 7.8% to 10.2% of the theoretical GST liability across the years 2014–15 and 2019–20. The net gap estimate for 2019–20 of $5.3 billion is 7.8% of the total theoretical GST liability and represents a decline of around $175 million from our revised 2018–19 estimate of $5.4 billion (7.8% of theoretical GST revenue for that year).

    Table 1: GST gap, 2014–15 to 2018–19

    Element

    2014–15

    2015–16

    2016–17

    2017–18

    2018–19

    2019–20

    Gross gap ($m)

    7,832

    9,134

    8,452

    7,734

    7,800

    7,560

    Amendments ($m)

    2,520

    2,641

    2,926

    2,419

    2,358

    2,293

    Net gap ($m)

    5,312

    6,493

    5,527

    5,316

    5,442

    5,267

    Tax paid ($m)

    54,579

    57,162

    60,597

    63,240

    64,379

    61,977

    Theoretical liability ($m)

    59,891

    63,656

    66,124

    68,555

    69,821

    67,244

    Gross gap (%)

    13.1

    14.3

    12.8

    11.3

    11.2

    11.2

    Net gap (%)

    8.9

    10.2

    8.4

    7.8

    7.8

    7.8

    Figure 1 displays the gross and net gap as a percentage over the same period.

    Figure 1: Gross and net GST gap percentage, 2014–15 to 2019–20
    Figure 1 shows the gross and net gap in percentage terms, as outlined in Table 1.

    Theoretical GST for 2019–20 was $67.2 billion. This represents a 3.7% decrease from the revised 2018–19 figure. The major components of the theoretical tax base that drove the reduction of GST were:

    • Household consumption for 2019–20 declined by 4.2% compared to 2018–19. This reflects the impact of COVID-19 which has resulted in the first decline in overall household final consumption expenditure (HFCE) in over 60 years and follows an extended period of strong growth (averaging around 3.5% over the previous six years).
    • New dwelling purchases (as indicated by gross fixed capital formation in dwellings) declined by 8.1% in 2019–20 compared to 2018–19. This represents sharply weaker growth compared to recent years and reflects the lowest observed growth rate in new dwelling purchases since 2000–01.

    GST paid was $62 billion for 2019–20. This represents a 3.7% decrease from the revised 2018–19 figure.

    Looking at the components of GST paid in detail:

    • Tax paid voluntarily declined by 3.8% to $59.7 billion in 2019–20, consistent with the decline in net GST revenue in 2019–20 due to lower consumption in the economy.
    • Amendments declined by 2.7% to $2.3 billion in 2019–20, a result of shifting the focus of our usual compliance programs to provide support to taxpayers due to the impacts of COVID-19.

    Voluntary tax paid and amendment figures from 2013–14 to 2019–20 have all been revised using the latest available information (see Table 1).

    Australia’s GST gap estimates are in line with those of similar international tax jurisdictions, including comparable European Union member countries and the United Kingdom.

    ATO action to reduce the gap

    We are constantly working to minimise the GST gap and maximise voluntary compliance by addressing and influencing taxpayer behaviour. A range of taxpayer actions can affect the GST gap and include:

    • non-reporting of GST
    • under-reporting of GST
    • over-claiming of refunds
    • non-payment of GST liabilities.

    These behaviours range in severity from honest reporting errors to deliberate non-compliance.

    2019–20 saw a different year for our compliance programs because of the bushfires and the COVID-19 pandemic. We paused some of our compliance work for those clients and areas affected by the bushfires and helped deliver the government's COVID-19 support and stimulus packages. Acknowledging that not all taxpayers and localities in Australia were impacted in the same way. We resumed our business-as-usual activities towards the end of the financial year when it was appropriate.

    Our compliance programs usually have a balance of prevention, early engagement and assurance activities and are targeted to those taxpayers and industries that are higher risk.

    These activities include:

    • analysing third-party data holdings, analytics and risk mitigation activities to identify and address non-compliance
    • preventing compliance issues before they arise by supporting those who want to do the right thing and helping them reduce mistakes – through reminders, nudges, improved information on ato.gov.au and public advice and guidance
    • taking a firmer approach with those we detect deliberately evading their GST and other tax obligations
    • continuing to integrate our work programs across all taxes, to deliver more effective and efficient risk management and enhance the taxpayer experience.

    We will continue to work towards closing the gap by:

    • building trust and confidence within the community by implementing strategies under the GST Compliance Program which include:
    1. development and implementation of contemporary risk modelling to take advantage of new and non-traditional data sets. In addition, leveraging the new ATO Integrated Compliance Intelligence and Assessment Centre’s increased data modelling capabilities – to better identify systemic GST fraud or evasion attempts
    2. detection of fraudulent behaviours and pre-issue reviews for high-risk GST refunds
    3. Justified Trust Assurance reviews to ensure large businesses report and pay the right amount of tax
    4. early engagement with entities that do not lodge and/or pay
    5. data matching GST at Settlement data with land titles transfers data from the States and Territories to identify property developers that may be outside the tax system, thereby avoiding their GST responsibilities.

    Methodology

    The GST gap is derived through applying a top-down approach. We use four steps in applying the top-down methodology to estimate the GST gap. These are expanded on below followed by a summary of the overall estimate:

    Step 1: Construct theoretical GST base using expenditure data

    Starting with household final consumption expenditure (HFCE) data subject to GST, we add estimates of expenditure for the following items:

    • new private dwellings investment expenditure (based on investment in new dwellings data)
    • consumers' share of ownership transfer costs
    • a proportion of land sales
    • net impact of international tourism.

    Step 2: Subtract GST concessions or exemptions

    We then remove specific expenditures included in HFCE. These are expenditures for which GST concessions or exemptions apply.

    These include:

    • expenditures that are exempt or concessionally taxed, such as food and education
    • input-taxed supplies, such as rent
    • certain financial supplies and reduced GST credits
    • concessions for entities with turnover less than $75,000 ($150,000 for not-for-profit entities).

    The residual amount is our estimate of total final consumption expenditure that is subject to GST.

    Step 3: Determine theoretical GST liability

    The total consumption expenditure value consists of the GST exclusive price and GST, which equals 10% of the price. We therefore isolate the total theoretical GST liability amount by dividing it by 11 (given the fixed GST rate of 10% incorporated in the data).

    Step 4: Consolidate the gap estimates

    We subtract the actual GST liabilities reported on an accrual basis, including our compliance activities, from the theoretical total GST liability to estimate the net gap.

    Non-pursuable debt increases the net gap. Therefore, we add this amount back to determine the net gap with debt amount. This is the most accurate measure of the tax gap for GST.

    The gross gap (including debt) is obtained by adding the liabilities raised from ATO compliance activities to the net gap figure.

    Some of the key assumptions of the methodology are as follows:

    • HFCE represents all Australian consumption by households. No additional uplift for the shadow economy has been applied other than those incorporated into the Australian Bureau of Statistics (ABS) estimates. The ABS currently makes an upwards adjustment of 0.4% to their HFCE estimate to account for under-reporting of sales.
    • No adjustments have been made for timing issues in some of the National Accounts aggregates used to quantify total theoretical GST revenue, despite some known conceptual misalignments in the area of private dwelling investment.
    • The generally fixed shares of GST-related consumption for each HFCE component derived from the 2015–16 Household Expenditure Survey do not adequately capture inter-temporal changes in the composition of household consumption. This issue is likely to be quite pronounced for both 2019–20 and future years given the likely continuing compositional shifts in spending caused by the COVID-19 pandemic.

    Summary of the estimation process

    Table 2 provides a summary of each step of the estimation process and the results for each year, from 2014–15 to 2019–20.

    Table 2: Summary of the GST gap estimation process

    Step

    Description

    2014–15

    2015–16

    2016–17

    2017–18

    2018–19

    2019–20

    1 to 3

    Total theoretical tax liability ($m)

    59,891

    63,656

    66,124

    68,555

    69,821

    67,244

    4

    Less final GST reported ($m)

    55,322

    57,828

    61,324

    63,984

    65,186

    63,664

    4.1

    Equals final GST liabilities not reported

    4,569

    5,827

    4,800

    4,571

    4,635

    3,580

    4.2

    Add non-pursuable debt ($m)

    743

    666

    727

    744

    807

    1687

    4.3

    Net gap with debt estimate ($m)

    5,312

    6,493

    5,527

    5,316

    5,442

    5,267

    4.4

    Add compliance outcomes and taxpayer adjustments ($m)

    2,520

    2,641

    2,926

    2,419

    2,358

    2,293

    4.5

    Equals gross gap with debt estimate ($m)

    7,832

    9,134

    8,452

    7,734

    7,800

    7,560

    4.6

    Gross gap (%)

    13.1

    14.3

    12.8

    11.3

    11.2

    11.2

    4.7

    Net gap (%)

    8.9

    10.2

    8.4

    7.8

    7.8

    7.8

    Limitations

    The GST gap is estimated primarily using Australian National Accounts data published by the ABS. The reliability of the gap estimate therefore depends on the accuracy and completeness of that data. National Accounts data includes a margin of error and imposes some limitations on the estimate.

    Specific issues include:

    • Sampling and non-sampling errors may exist.
    • Underlying data is subject to revision, which can vary historical trend results and the estimated GST gap.
    • Timing differences can exist between the National Accounts and GST treatment for certain supplies.

    There is a time lag between the completion of a period and the publishing of Australian National Accounts data.

    In addition, concessions and exemptions are identified and estimated in the Treasury Tax Expenditures Statement. The statement estimates can have a wide range and are not exhaustive, with only major exemptions and exceptions identified.

    Accounting for shadow economy activity in a top-down model

    The theoretical GST liability is based on macro aggregates compiled by the ABS which have been adjusted upwards to include an indicative impact of the shadow economy. Reflecting this, we make no further adjustment for the shadow economy when calculating the theoretical GST liability and resultant tax gap. This means that our estimate of the tax gap includes a component due to the shadow economy.

    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.

    Periodically, information collated and analysed by the ABS is updated or revised. For the GST gap estimate, this means that changes to the underlying data will influence the outcomes of our analysis. The ABS generally revise their annual benchmarks for the prior three years. However, they periodically revise the entire time series. The effects of these changes to our estimate are demonstrated at Figure 2.

    Figure 2: Effect of ABS revisions and methodological changes on previous GST net gap estimates, 2011–12 to 2019–20

    Figure 2 shows the net gap estimates from previously published years as outlined in Table 3.

    This data is set out in Table 3, shown as a percentage.

    Table 3: Effect of ABS revisions and methodological changes on previous GST net 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

    2011 Program

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    2015 Program

    6.8

    7.7

    7.1

    6.5

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    2016 Program

    7.0

    7.0

    5.8

    6.1

    6.5

    n/a

    n/a

    n/a

    n/a

    n/a

    2017 Program

    7.1

    7.0

    5.7

    6.1

    6.7

    7.3

    n/a

    n/a

    n/a

    n/a

    2018 Program

    n/a

    8.1

    7.4

    7.1

    7.4

    8.7

    7.9

    n/a

    n/a

    n/a

    2019 Program

    n/a

    n/a

    7.7

    7.3

    7.1

    8.2

    7.2

    7.3

    n/a

    n/a

    2020 Program

    n/a

    n/a

    n/a

    7.3

    7.5

    8.2

    6.9

    7.3

    8.1

    n/a

    2021 Program

    n/a

    n/a

    n/a

    8.4

    8.9

    10.2

    8.4

    7.8

    7.8

    7.8

    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 medium (with a score of 19).

    The reliability framework draws on our and the International Monetary Fund's (IMF's) experience. The overall reliability rating provides a transparent assessment of the reliability of our gap estimates.

    Data used to estimate the theoretical tax liability is largely based on external data sources and incorporates a factor for the shadow economy. The macro-economic data used incorporates a margin for error and are revised regularly by the ABS. Our theoretical tax liability and tax gap estimates are therefore impacted by these potential errors in the macro drivers and thus will also be revised as a normal part of our regular tax gap program. We also retain some concerns over the completeness of the tax base covered and the estimates for concessional and exempt expenditure.

    Figure 3: Reliability rating scale from very low to very high – GST gap

    Figure 3: This image shows a graph that represents the reliability rating for the current goods and services tax gap estimate. The rating scale includes: - Very low, which is a score between 0 and 10 - Low, which is a score between 11 and 15 - Medium, which is a score between 16 and 20 - High, which is a score between 21 and 25 - Very high, which is a score between 26 and 30. The graph shows the GST gap estimate has a rating of 19, which is medium.

      Last modified: 18 Nov 2022QC 70863