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  • Tax gap framework

    Our estimates aim to quantify the level of non-compliance across the 4 pillars of compliance – registration, lodgment, reporting and payment obligations.

    Where possible, we also estimate the amount of revenue not collected from those who fail to register or lodge. However, penalties and interest are not included in gap estimates.

    We have 2 measures of the tax gap – the gross gap and the net gap.

    The gross gap is the difference between:

    • the amount voluntarily reported to the ATO, and
    • the amount we would have collected if every taxpayer was fully compliant with tax law (that is, the theoretical tax liability).

    The net gap is the difference between:

    • the amount voluntarily reported to the ATO plus amendments as a result of compliance activities and voluntary disclosures, and
    • the amount we would have collected if every taxpayer was fully compliant with tax law.

    We estimate gaps for the year the economic activity occurred and are based on the law and the administrative approaches at that time.

    Figure 3 shows the components of the tax gap, including the net gap, the gross gap, the amount reported and theoretical tax liability.

    Figure 3: Components of tax gap

    Figure 3: The tax gap concepts include the amount voluntarily reported which is the majority, amendments due to compliance activities and voluntary disclosure, and the amount not paid, against the theoretical tax liability. The amount not paid is the net gap. The amount not paid plus the amendments is the gross gap.

      Last modified: 31 Oct 2022QC 53168