• Goods and services tax gap

    The goods and services tax gap (GST gap) is the difference between the actual tax liability reported and paid to us (or that we raise) and the theoretical tax liability (the tax liability that should be reported and paid to us assuming all businesses and individuals fully comply with their GST reporting obligations).

    Trend in GST gap

    We measure the GST gap to determine the level of correct GST revenue that should be reported and collected. We use the GST gap, along with other measures, to understand the extent our compliance efforts have brought about positive and sustainable taxpayer behavioural changes. Our methodology can be found on our website at Measuring tax gaps in Australia for the goods and services tax. 

    The GST gap analysis is most useful when viewed as a trend rather than as an absolute measure. Since the GST was introduced, the GST gap has consistently trended downwards. However, it has been broadly consistent over the past few years. This suggests that compliance levels are being maintained over time.

    Figure 4: GST Gap 2008–09 to 2013–14(7)

    Decorative graph (difficult to explain): This graph shows the GST gap as a percentage of revenue by GST gap, GST gap trend and the GST gap (including debt) from 2008–09 to 2013–14 (as 2014–15 data is not yet available).

    (7) Caution should be exercised in interpreting results for 2008–09 and 2009–10 because the GST gap result (excluding debt) for 2009–10 of 3.1% was substantially lower than the average GST gap percentage over the last eight years. A fall in non-compliance of such magnitude is highly unlikely and we believe that the movement is more likely a reflection of the relationship between Australian Bureau of Statistics national accounts data and tax data during that period (such as timing differences in the recognition of dwelling investment in national accounts data and tax data).

    The GST gap for 2013–14 was estimated to be $2.7 billion, excluding debt; this is 4.9% of theoretical revenue. The GST gap, including debt, is estimated to be 6.5% of theoretical revenue. This result is an improvement on the relatively stable trend in the GST gap experienced between 2011 and 2013.

    Table 11: GST Gap 2010–11 to 2013–14

    GST gap summary

    2010–11

    2011–12

    2012–13

    2013–14

     

    $b

    $b

    $b

    $b

    Net GST gap excluding debt

    $2.70

    $3.12

    $2.89

    $2.70

    Net gap excluding debt as a percentage of theoretical revenue

    5.5%

    6.2%

    5.6%

    4.9%

    Net gap with debt as a percentage of theoretical revenue

    6.8%

    7.7%

    7.1%

    6.5%

    Prior year estimates of the GST gap and voluntary compliance ratio are regularly refreshed as BAS are lodged or amended. The GST gap is also adjusted to account for revisions to external data sources such as the Australian Bureau of Statistics. This process results in some differences in the prior year estimates to what was previously published.

    Impact of compliance activity on GST gap

    We estimate that 95% of 2013–14 theoretical GST revenue has been reported to the ATO. Further we estimate the GST revenue base comprises:

    • 89.4% revenue lodged and reported by business without direct ATO compliance interventions
    • 5.6% actively encouraged or forced to comply through ATO active compliance interventions.

    The business community and ATO strategies play important roles in underpinning GST compliance levels. While there is not a direct correlation, it is reasonable to observe that without the preventative and direct ATO compliance activities and related incentives for full compliance, the GST gap would be approximately 10.6% for 2013–14.

    Figure 5: Impact of compliance action on the GST gap 2008–09 to 2013–14

     Impact of compliance action on the GST gap 2008-09 to 2013-14 graph
This graph visually shows the impact of active compliance on the GST gap by showing the GST gap and GST without active compliance interventions from 2008-09 to 2013-14. The distance between these two equals the impact of active compliance on the GST gap.

    Compliance liabilities raised from direct activities reduced by 22% this year. However, it should be noted that as identified in last year’s GST administration performance report, the 2013–14 results included significant one-off cases totalling $915 million. In 2014–15, there was one case worth $300 million. If these ‘outlier’ cases were removed from each year, compliance liabilities raised this year are more comparable to last year.

    Table 12: GST gross and net tax gap 2010–11 to 2013–14

    Gross and net GST gap as percentage of theoretical revenue

    2010–11

    2011–12

    2012–13

    2013–14

    Gross gap - Net gap excluding ATO compliance revenue (excluding debt)

    9.1%

    9.6%

    10.1%

    10.6%

    Net gap (excluding debt)

    5.5%

    6.2%

    5.6%

    4.9%

    GST voluntary compliance ratio

    Last year was the first time we published information on the GST voluntary compliance ratio (VCR). This approach has continued to be refined this year as a complementary measure to the work undertaken on GST gap.

    We believe that understanding the proportion of taxpayers who voluntarily comply with their obligations, and identifying the value of GST remitted voluntarily, assists in gauging the health of the GST system and provides confidence in its operation across the community. One way we determine these factors is through the VCR analysis.

    Methodology

    The VCR seeks to measure the proportion of taxpayers who are fully compliant with the ‘pillars of compliance’, four key tax obligations. These pillars are referred to as GST registration, BAS lodgment, BAS payment and the level of correct reporting of business activity. A measure across these pillars gives a view of the level of voluntary compliance through seeking to determine how many GST taxpayers are correctly registered, lodge by the required due date, report the correct amount of GST, and pay this amount on time.

    Measurement

    The methodology measures voluntary compliance at two key levels:

    • GST revenue value level - examines the value of GST revenue that is voluntarily provided to the ATO in accordance with the law. This year, we estimate that 84.4% of expected GST revenue has been reported. Overall, the VCR at the GST revenue value level has trended slightly upwards since 2009–10.

    Figure 6: VCR by revenue value

    oluntary compliance ratio by revenue level graph
This graph shows the results for the voluntary compliance ratio by revenue value from 2008–09 to 2012–13. Results are 78.5% in 2008–09, 81.4% in 2009–10, 82.6% in 2010–11, 82.4% in 2011–12, 82.5% in 2012–13, 84.4% in 2013–14.

    • GST taxpayer level - examines the number of taxpayers who completely meet all their obligations for the financial year. This year, we estimate that 50% of taxpayers meet their obligations. This figure is the level of taxpayer compliance in the strict sense (i.e. without behavioural or sensitivity assumptions applied). Therefore, the VCR in the strict sense, does not give any consideration to minor late payments or lodgments by taxpayers who we believe are intending to be compliant. Overall, the VCR at the taxpayer level has remained consistently around 50% since 2008–09. Greater insight is gained if the level of taxpayer compliance is measured allowing for:
      • Clients who have no total business income in the year (a nil BAS)
      • Clients who are only considered non-compliant for having one BAS lodged late and/or one late payment.
       

    Measured in this way, the level of voluntary compliance by taxpayers is 81.5%. This approach recognises the significant proportion of taxpayers who aim to do the right thing, but for one reason or another, are late with either a single lodgment or payment.

    Figure 7: VCR by GST taxpayer level

    Voluntary compliance ratio by GST taxpayer level graph
This graph shows the results for the voluntary compliance ratio by taxpayer level from 2008–09 to 2012–13. The top line shows VCR at taxpayer level recognising minor variations and the lower line shows VCR at taxpayer level in the ‘strict sense’. Results for the first line (from financial years 2008–09 to 2013–14) are: 77.3%, 76.8%, 76.5%, 78.5% and 81.5%.Results for the first line (from financial years 2008–09 to 2013–14) are: 50.4%, 48.8%, 48.6%, 48.2%, 50.0% and 50.0%.

      Last modified: 14 Dec 2015QC 47462