Limitations with analysis
The ATO use external data to estimate theoretical GST liability. There are limitations with using external benchmark data.
A summary of limitations includes:
- Completeness and accuracy - As the GST gap is derived as a residual of an extensive estimation process, any data or estimation errors in the calculation will be reflected in the GST gap estimate. The GST gap is estimated primarily on the basis of national accounts data, and therefore depends on the data's accuracy and completeness. Limitations with the granularity of the data and the coverage of national accounts, in so far they measure all final consumption in the economy, means the GST gap estimates contain a margin of error.
- Exemptions and exceptions - The value of GST concessions is estimated by internal ATO analysis and the use of Treasury's tax expenditure statements (TES). The GST TES are not exhaustive. These estimates have a bearing on the GST gap outcomes.
- Revisions - National accounts data are subject to revisions which can vary historical trend results. Material revisions to the national accounts can result in changes to the size of the estimated GST gap.
- Timing differences - These can exist between consumption as reported in national accounts and when the GST is reported to the ATO (for example dwelling expenditure is likely to have timing differences between the two data sets).
Some caution should be taken when analysing the absolute dollar GST gap results. The results are a guide only and should not be seen as a collectable GST amount. Reducing the size of any tax gap requires a change in taxpayer attitudes to compliance and/or additional compliance results. Therefore changing the level of the GST gap should not be viewed as a cost-free exercise.
Because of the inherent limitations in the GST gap analysis, the GST gap is best viewed as a trend over time.