• Voluntary compliance ratio

    The voluntary compliance ratio (VCR) complements gap estimates by measuring the proportion of taxpayers fully compliant with their tax obligations. Under the four pillars of compliance, there are four key taxpayer obligations covered by the VCR:

    • registration – taxpayers/entities are correctly registered, as required
    • lodgment – the required returns are lodged by the due date
    • payment – tax liabilities are paid on time
    • reporting – the correct amount of tax liabilities are paid.

    The VCR estimate is a cumulative assessment of compliance. Failure against one of the pillars counts as non-compliance in a taxpayer’s total tax affairs.

    Non-compliant taxpayers are removed from the starting population at each pillar, leaving a final compliant population, which is expressed as a percentage of the starting population. A taxpayer failing at any stage is considered non-compliant and is not tested for compliance at a later stage.

    The VCR measures the proportion of a population who meet all four obligations, expressed as a percentage of the starting population. We measure the VCR for both the number of taxpayers (taxpayer level) and the value level.

    Combining levels of correct registration, lodgment and payment on time, with gap estimates, provides an additional indicator of the value of revenue remitted by taxpayers without any direct intervention by us.

    We calculate the VCR for GST, wine equalisation tax (WET) and luxury car tax (LCT). The step-by-step methodology we use to calculate the GST VCR is provided in GST tax voluntary compliance ratio. Similar methodologies are used to estimate the VCR for WET payable and LCT payable.

    VCR – taxpayer level

    To estimate the VCR at the taxpayer level, we determine the number of taxpayers that voluntarily comply with all obligations, and then divide this by the number of taxpayers required to be registered under the law.

    The calculation is represented as:

    50394taxgapmethodology_js37880

    We also calculate an ‘adjusted VCR’ at the taxpayer level, which is not as strict as the above test. In the adjusted VCR calculation, taxpayers are assumed to be compliant if:

    • they have no total business income in the year (that is, all business activity statements are nil)
    • they only have one late lodgment of a business activity statement (BAS) and/or one late payment through the year.

    VCR – value level

    For the VCR at the value level, we sum the value of each compliant taxpayer’s tax as it moves through the four pillars of compliance. This amount is divided by the value of the tax expected under the law.

    The calculation is represented as:

     50394_vcrvaluelevel_js37880

      Last modified: 27 Oct 2016QC 50394