Calculating the fuel tax credit gap

In 2007–08, we undertook a statistically-based random audit program of 2006–07 fuel tax credits claims to:

  • determine the level and value of fuel tax credit non-compliance (overclaiming of credits)
  • determine major risk areas across the sample population
  • assess compliance with the environmental criteria.

The analysis showed that one-third of taxpayers made an error in preparing a claim, with the value of overclaiming of credits to be around 1.2% of total fuel tax credits. This was approximately $60 million in 2006–07. If compliance levels have held since 2006–07, this would suggest a low tax gap overall. No further random audit programs have been conducted since 2007–08.

To determine if compliance levels have held at a macro level since 2006–07, we benchmark the growth in FTC claims against diesel clearances growth to see if both data sets have (or have not) moved together. This might indicate any changes in compliance levels. We use diesel excise clearances as the benchmark because the vast majority of fuel tax credit claims relate to diesel purchases by business. The result is represented below.

Indexed fuel tax credit claims against diesel excise clearances

This chart shows the indexed trend in fuel tax credit claims against diesel excise clearances reported to the ATO from September 2007 to June 2014. The base year is 2006–07.

Over the last eight years, diesel excise clearances and fuel tax credits claims have, in general, moved together. The lower growth in claims since 2012–13 was a result of the carbon levy. This reduced the FTC rate for many businesses (excluding agriculture and heavy on-road).

This benchmarking suggests that compliance levels have remained relatively stable since 2006–07, and thus the gap remains at 1.2% of fuel tax credits claimed. Including debt, the gap is estimated to be around 1.5% of the amount claimed over the period.

This result is expected based on the distribution of claims by business. In 2013–14, the top 1% of businesses (1,800 taxpayers) accounted for 77% of fuel tax credits claims and the top 6% of businesses accounted for 87%. This data shows that the majority of claims are from large taxpayers who are generally complaint as they access resources and advice to ensure their claims are correct. Thus, we would expect the size of the gap to be minimal.

    Last modified: 05 Nov 2015QC 47278