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    Definitions

    The defined terms below are used specifically in relation to the tobacco tax gap. Further definitions for our broader tax gap program are available in Principles and approaches to measuring gaps.

    Black economy

    The black economy includes the 'cash economy' or 'non-observed economy'. The OECD refers to the 'economic underground'.

    The black economy involves economic activity not declared. This may be a result of attempts to avoid tax obligations.

    Australian System of National Accounts data makes a small allowance for expenditure associated with the 'underground economy'. This includes cash economy transactions, transactions relating to other avoidance measures, and understating income in ABS surveys.

    Bottom-up approaches

    Bottom-up approaches involve a detailed examination of data sources, such as tax returns, audit results (including random enquiry programs), risk registers or third-party data-matching information. We then extrapolate the results to determine the extent of non-compliance across the whole population, from which we estimate the tax gap. A bottom-up approach is typically used for direct taxes.

    Channel analysis

    A channel analysis approach is an examination of data (volumes or taxable value of a commodity) from various sources, to determine the extent of non-compliance across the whole population. The data sources can include check-point seizures (such as through customs) or property raids. It can also include operational data and insights from relevant experts.

    Chop-chop tobacco

    Illicitly grown domestic tobacco is often referred to as 'chop-chop', which is unbranded loose-leaf tobacco sold without tobacco duty applied.

    An excise licence is required to cultivate tobacco, placing strict rules and conditions on the grower. There are currently no licences issued for the cultivation of tobacco in Australia for either commercial or personal use. Therefore, all tobacco grown in Australia for consumption is illicit.

    Home consumption

    The release of excisable goods to the domestic market is referred to as being released to home consumption.

    Licensed warehouses

    The movement of excisable goods such as tobacco is controlled through a system of licensed warehouses. These are jointly administered by the ATO and Home Affairs. Movement permissions are needed to transfer stock between warehouses or for export.

    Tobacco clearances

    Tobacco clearances are payments of tobacco duty, which allow tobacco to be released or 'cleared' into home consumption.

    Underbond

    'Underbond' is the term used to describe excisable goods in the licensed warehouse system, such as tobacco, that have not yet had duty paid on them. Duty is paid on these goods as they exit the warehouse system and enter into home consumption.

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      Last modified: 17 Oct 2019QC 55324