GST gap with and without debt
The ATO have used the economic transaction method (ETM) for determining actual GST liability outcomes on an accrued basis. ETM revenue estimates are closely aligned to statement outcomes results - net GST reported on the business activity statement (BAS).
ETM revenue is based on actual liabilities remitted during the year and an estimate of amounts outstanding that relate to transactions that have occurred in the period but are yet to be reported.
The advantage of using ETM for actual GST revenue is that the problems with debt, late lodgment and the cash allocation process are overcome. It also facilitates matching of active compliance liabilities to their appropriate accounting period, and facilitates benchmarking with ABS data, which is also on an accruals basis.
However, to allow international comparisons the ATO have also estimated the GST gap including debt. The debt component of the GST gap is the difference between accrual GST revenue and GST cash collected in the period.
There are limitations with debt analysis. We adopt a running-account-balance method in relation to taxpayer liabilities and apply an allocation methodology for deriving GST debt. This has presented some challenges with determining the precise contribution of GST debt to the GST gap.