Tax gap estimates
Tax gaps estimate the difference between what the ATO expects to collect and the amount that would have been collected if every taxpayer was fully compliant with relevant taxation law.
The tax gap estimates shown in the following tables and commentary are net gaps. They represent our estimate of what ultimately will be uncollected in each financial year after recognising the impact of ATO compliance and other activities. Our historical estimates are refreshed to account for more information, allowing for a more informed analysis of the trend in tax gap.
We group our tax gap estimates into 3 main categories:
- transaction-based taxes
- income-based taxes
- administrative programs – these do not form part of our headline tax gap estimate (see Table 3 and Table 4).
Recognising the public benefit of reliable and credible tax gap estimates, we continue to engage an external independent advisory group who provide advice on our estimation approaches.
As the nation’s principal tax collector, the ATO uses tax gap estimates to inform strategies to reduce tax gaps over time. We engage with a range of stakeholders to understand risks and drivers, and how we can collaborate to maximise voluntary compliance.
2022–23 total net tax gap estimate
For 2022–23, we estimate the net tax gap for income, transactional and excise taxes to be $58.2 billion, or 9.1% of the total theoretical tax of $640.5 billion. This is an increase of $9.1 billion from 2021–22 and $17.7 billion in 2020–21.
2022–23 key findings
The 3 largest components of the net tax gap are the:
- small business income tax gap
- individuals income tax gap
- GST gap.
Together these account for more than 80% of the $58.2 billion.
The small business income tax gap is the largest component of the total tax gap (accounting for 47%). We estimate this tax gap has increased from 15% in 2020–21 to 17.4% in 2022–23. As this estimate represents almost half of the total tax gap, it is a significant driver of the overall tax gap estimate. We continue to focus on deliberate behaviours to avoid taxes or exploit the regulatory system, in particular through our shadow economy funded program.
The individuals net tax gap is the second largest component, at 21% of the overall gap. We estimate the tax gap for individuals is $12.5 billion in 2022–23, or 6.2% of the total theoretical tax, down from 6.7% in 2021–22. We continue to expand the use of third-party data to pre-fill tax returns, and data and analytics to prevent the overclaiming of deductions.
The GST gap represents 14% of the total and has increased to $8.1 billion, or 9.1% in 2022–23, rising from 6.4% in 2021–22. We are committed to helping small businesses get it right to register for GST and report their GST transactions accurately. Additionally, recent legislative changes have allowed us more time to process refunds to detect and investigate potential fraud before a refund is issued.
We also estimate the net tax gap for pay as you go (PAYG) withholding and 4 administered programs (see Table 3). These additional estimates do not form an additional part of the overall tax gap estimate, as they are already implicitly included in other gap estimations.
This year we are no longer including the tobacco tax gap estimate as a part of the overall net tax gap. While we have published the stand-alone tobacco estimate this year, we have assessed the estimate as unreliable. We will undertake a review of the method. The recently-established office of the Illicit Tobacco and E-cigarette Commissioner (ITEC) will provide more comprehensive reporting on the size of both the illicit tobacco and e-cigarette markets. This will cover estimates of excise and excise-equivalent customs duty evaded on the total illicit tobacco market, as well as the size of the e-cigarette market, which is not subject to excise or custom duty. We will work with ITEC to include in future years, an estimate of the excise duty evaded on domestic production of tobacco.
Governance and assurance
We have a strong governance framework and assurance process over our estimation methods used in gap processes. This includes external review by an advisory panel of subject matter experts to ensure we have high confidence in our tax gap estimates, as well as in our other metrics that measure tax system performance which we report in our Commissioner of Taxation annual report.
Tax gap estimates are a lag indicator. They measure the performance of the tax system for previous years.
Tax gaps are about measuring what isn't directly observable – what people have not told us.
Taxpayers may not have reported their true tax position:
- due to a misunderstanding of their obligations
- by choice
- by taking a tax position that differs from our view of the law.
All tax gap estimates are subject to a degree of estimation error. Estimates can change from prior years due to the availability of data, improvements in the methods we use and revisions to previous years' data, for example audits completed and assessments raised after a review.
The trends of tax gap over time:
- provide useful insights into the longer-term operation of the tax and superannuation systems
- inform on the overall performance and integrity of the system, including levels of willing participation and significant shifts in compliance
- can guide us in determining priority risks and opportunities to better inform where we need to focus to
- lock in improvements in compliance
- prevent behaviours and activities that might increase the tax gap
- reduce the overall tax gap over time.
Changes in the economy, society and technology mean the issues driving tax gaps continue to evolve. We also must be realistic and recognise that there are many factors that ultimately impact on the overall tax gap, and that some of these will be outside the control of the ATO. No tax system or administration can eliminate tax gaps, as the cost of doing so would be excessive.
Effective tax gap management requires engagement with a range of stakeholders. Our work goes beyond estimating the tax gap. We want to understand the risks and drivers, and how we can work together with the community to sustainably improve compliance.
In this overview of tax gaps in Australia, we explain why we measure tax gaps, our approach to ensure credibility and a summary of the latest available estimates.
You can find out more about our research methodology, data sources and analysis used for our tax gap estimates in Principles and approaches to measuring gaps.
Tax gaps by category
Following are the different tax gaps we measure, which we group into 3 categories:
Transaction-based tax gaps
- Alcohol tax gap
- Fuel excise tax gap
- Goods and services tax gap
- Luxury car tax
- Wine equalisation tax gap
- Tobacco tax gap*
Income-based tax gaps
- Fringe benefits tax gap
- High wealth income tax gap
- Individuals not in business income tax gap
- Large corporate groups income tax gap
- Large super funds income tax gap
- Medium business income tax gap
- Petroleum resource rent tax gap
- Small business income tax gap
- Small super funds income tax gap
Administered program and PAYG withholding gaps:
- Fuel tax credits gap
- PAYG withholding gap
- Product stewardship for oil gap
- Superannuation guarantee gap
For previously published tax gap figures, see Australian Tax Gaps - Data.gov.au External Link