What has changed
This year, we made improvements to incorporate estimates of PAYG withholding liabilities that are unlikely to be paid into the gap estimate. The estimates are referred to as long-term non-payment. There have been no other changes to our method this year. This is the third year of applying a bottom-up approach methodology based on the random enquiry program (REP) to inform gap estimate results.
Step 1: Estimate unreported PAYG withholdings
Unreported tax consists of the additional tax expected to be raised if we undertook compliance activity on the portion of the tax base not covered. It arises from incorrectly reported tax returns, as unreported withholdings, from the active employing entities population.
We use the REP compliance outcomes to determine the average amendment amount and average rate of amendments. These results are then extrapolated to the whole of the active employing entities to calculate the estimated unreported tax amount.
Step 2: Estimate non-detection
We account for non-detection by applying an uplift factor to amendments and hidden wages. The impact of non-detection on the PAYG withholding gap is estimated to be $6,024 million in 2023–24.
Not all errors are detected through the REP. We account for these by applying a non-detection uplift to the unreported tax liability estimate.
The 2 sources of non-detection for this tax gap relate to:
- PAYG withholding misreporting
- hidden wages.
|
Source of non-detection |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|
|
PAYG withholding misreporting (excluding hidden wages) |
167 |
175 |
188 |
197 |
208 |
263 |
259 |
306 |
338 |
|
Hidden wages |
3,989 |
3,763 |
3,951 |
4,160 |
4,321 |
4,503 |
4,828 |
5,307 |
5,687 |
|
Total non-detection |
4,156 |
3,938 |
4,139 |
4,357 |
4,530 |
4,766 |
5,087 |
5,612 |
6,024 |
Step 3: Estimate long-term non-payment
We add estimated long-term non-payment of PAYG withholding liabilities.
Step 4: Calculate the gross gap and net gap
We combine the amounts determined above for amendments, unreported tax, and non-detection with long-term non-payment to obtain the gross and net tax gaps. The net gap is equal to the gross gap less amendments.
We then add the gross gap to the tax voluntarily paid amount to estimate the theoretical tax liability. We calculate the gap percentages by dividing the gap estimate by the theoretical tax liability.
Summary of the estimation process
Table 4 provides a summary of each step of the estimation process and the results for each year.
|
Step |
Description |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|---|
|
1 |
Estimate unreported amounts and extrapolate to population ($m) |
334 |
351 |
377 |
394 |
417 |
525 |
518 |
611 |
675 |
|
2 |
Apply estimate for non-detection ($m) |
4,156 |
3,938 |
4,139 |
4,357 |
4,530 |
4,766 |
5,087 |
5,612 |
6,024 |
|
3 |
Estimate for long-term non-payment ($m) |
367 |
402 |
526 |
735 |
765 |
977 |
1,215 |
1,484 |
1,553 |
|
4.1 |
Gross gap ($m) |
4,857 |
4,691 |
5,042 |
5,485 |
5,711 |
6,268 |
6,821 |
7,707 |
8,253 |
|
4.2 |
Subtract compliance outcomes ($m) |
1,520 |
2,424 |
2,463 |
2,966 |
1,953 |
1,354 |
1,873 |
2,348 |
2,215 |
|
4.3 |
Net gap ($m) |
3,337 |
2,267 |
2,579 |
2,519 |
3,758 |
4,914 |
4,948 |
5,359 |
6,038 |
|
4.4 |
Add tax reported ($m) |
175,323 |
182,181 |
195,218 |
208,465 |
217,144 |
222,788 |
242,757 |
273,096 |
298,717 |
|
4.5 |
Theoretical liability ($m) |
178,294 |
184,046 |
197,271 |
210,250 |
220,137 |
226,725 |
246,489 |
276,971 |
303,202 |
|
4.6 |
Gross gap (%) |
2.7% |
2.5% |
2.6% |
2.6% |
2.6% |
2.8% |
2.8% |
2.8% |
2.7% |
|
4.7 |
Net gap (%) |
1.9% |
1.2% |
1.3% |
1.2% |
1.7% |
2.2% |
2.0% |
1.9% |
2.0% |
Note: Non-detection is captured within the unreported tax component.
Find out more about our overall methodology, data sources and analysis we use at Principles and approaches to measuring gaps.
Limitations
The current methodology provides an aggregated estimate of the PAYG withholding gap.
The assumptions we use to construct our estimate are informed by actual data and expert opinion. The following caveats and limitations apply when interpreting this tax gap estimate:
- The precision of the estimate is limited by the sample size – we use a bundled sample.
- The true extent of non-detection is unknown and is challenging to measure. We assume there will be errors and omissions in our compliance activities due to factors outside our control and limitations in operational capability and capacity.
- The true extent and distribution of hidden wages is challenging to measure. We assume that there is shadow economy behaviour, such as cash wages, in this population.
Updates and revisions to previous estimates
Each year we refresh our estimates in line with our annual report. Changes from previously published estimates occur for a variety of reasons, including:
- improvements in methodology and assumptions
- revisions to data
- additional information becoming available.
Figure 2 displays the net gap estimates from our current model compared to the previous estimates.
Figure 2: Current and previous PAYG withholding gap estimates, 2008–09 to 2023–24
|
Year published |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|
|
2026 |
1.9% |
1.2% |
1.3% |
1.2% |
1.7% |
2.2% |
2.0% |
1.9% |
2.0% |
|
2025 |
2.0% |
1.4% |
1.4% |
1.2% |
1.7% |
2.1% |
1.9% |
1.7% |
n/a |
|
2024 |
1.8% |
0.9% |
0.9% |
0.5% |
1.7% |
2.0% |
1.8% |
n/a |
n/a |
|
2023 |
4.1% |
3.9% |
3.1% |
2.6% |
2.4% |
1.7% |
n/a |
n/a |
n/a |
|
2022 |
3.6% |
3.5% |
2.6% |
1.9% |
1.5% |
n/a |
n/a |
n/a |
n/a |
|
2021 |
2.4% |
1.7% |
1.8% |
1.6% |
n/a |
n/a |
n/a |
n/a |
n/a |
|
2020 |
2.3% |
1.7% |
1.8% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |