GST voluntary compliance ratio
The GST voluntary compliance ratio (VCR) is based on the four pillars of compliance (registration, lodgment, reporting and payment).
It is a cumulative assessment of compliance. Failure against one of the pillars counts as non-compliance in a taxpayer’s total GST 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.
To measure compliance with GST registration obligations, we start by examining total business income from lodged income tax returns. We compare this data with the population registered for GST to estimate the number of taxpayers who were not registered despite being required to be.
To determine the total number of taxpayers obligated for GST, we add the above population to the number of taxpayers that received a business activity statement (BAS) in that financial year.
We measure compliance with the registration pillar, at the taxpayer and value level, as follows:
- taxpayer level – the number of taxpayers who were not registered and were required to be registered, divided by the total number of taxpayers obligated for GST
- value level – the value of expected GST based on income tax return data.
Taxpayers found to be compliant at the registration stage move through for assessment against lodgment.
Lodgment performance is based on the original GST BAS lodged for each BAS period. For the purposes of calculating the VCR, a BAS is considered lodged on time if it has been received by us within 30 days of the due date (including revised due date).
We measure compliance with the lodgment pillar as follows:
- taxpayer level – any taxpayer that has lodged all BAS on time during the year is compliant, while a taxpayer that has not lodged one or more BAS, or lodged late, is considered non-compliant
- value level – the sum of the value of GST reported on any BAS lodged late during the year.
Taxpayers found to be compliant at the lodgment stage move through for assessment against payment.
Taxpayers need to pass at least one of the following four tests to be classified as compliant with their payment obligations:
- the payment amount matches GST liability as reported on the BAS
- the account balance was less than or equal to $0 on the date of the posted liability
- the account is less than or equal $100 anytime within 15 days from the posted liability
- the account balance is less than or equal to the starting balance plus 5% at any time within 15 days from the posted liability.
In addition, taxpayers who have lodged all their BAS on time, with nil or refundable net GST amounts are considered to be fully compliant at the payment stage.
We measure compliance with the payment pillar as follows:
- taxpayer level – the number of taxpayers who paid 100% of their liabilities on time through the year
- value level – the value of GST liability that is paid by the due date (subject to the above tests) for each BAS.
Taxpayers found to be compliant at the payment stage move through to assessment against correct reporting.
We measure compliance with the correct reporting pillar, at the taxpayer level and value level.
Using past audit results, we estimate the number of taxpayers that are reporting their correct GST obligations to us. This is represented as:
We calculate the mean audit amount using log–normal probability density functions, as the distribution of our audit results is approximately log normal.
The limitation of this approach is that audits are not conducted randomly. Current audit selection is based on risk factors, including the size of potential amendment, and the largest potential amendment cases are generally prioritised. As audits are generally subject to diminishing marginal returns, audit cases subsequent to this would be of lesser value. Therefore, in the above calculation, we are likely to underestimate the number of non-compliant taxpayers for the reporting pillar.
We are further developing our statistical approaches to better calculate the number of fully compliant taxpayers.
We calculate correct reporting at the value level using components of the GST gap. The GST gap represents the maximum amount of extra revenue we would receive if all taxpayers were compliant with each pillar of compliance.
We take into account the value of the tax gap that relates to the non-registration and non-lodgment. The remaining value is the estimated amount of non-compliance at the reporting stage. This is represented as: