For 2022–23 we estimate a net PAYG withholding gap of around $4.7 billion or 1.7% of estimated theoretical PAYG withholding. This means approximately 98% of the total theoretical withholding payable is expected to be collected.
The PAYG withholding gap estimate does not form a part of our total tax gap measure. A portion of the PAYG withholding gap is already included in the individuals not in business tax gap and the small business (individuals in business) tax gap estimate where we determine under-reported tax at the employee level due to employers failing to withhold the correct amount. We keep the PAYG withholding gap separate to avoid double counting.
Our current gap estimate is based on findings from our 2-year random enquiry program (REP) covering 2021–22 and 2022–23. The estimates from this program are outlined in the following table.
|
Element |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
|---|---|---|---|---|---|---|
|
Population |
873,210 |
857,337 |
903,261 |
1,017,939 |
1,003,474 |
1,011,402 |
|
Gross gap ($m) |
5,220 |
5,499 |
5,731 |
6,088 |
6,471 |
7,082 |
|
Amendments ($m) |
2,463 |
2,966 |
1,953 |
1,354 |
1,873 |
2,348 |
|
Net gap ($m) |
2,757 |
2,533 |
3,778 |
4,734 |
4,598 |
4,734 |
|
Expected collections ($m) |
194,692 |
207,730 |
216,379 |
221,811 |
241,542 |
271,612 |
|
Theoretical liability ($m) |
197,449 |
210,263 |
220,157 |
226,545 |
246,139 |
276,345 |
|
Gross gap (%) |
2.6% |
2.6% |
2.6% |
2.7% |
2.6% |
2.6% |
|
Net gap (%) |
1.4% |
1.2% |
1.7% |
2.1% |
1.9% |
1.7% |
Figure 1 shows the gross and net gap as a percentage over the same period. While the gross gap remains unchanged over the estimation period, the net gap shows a decreasing trend since the period of COVID-19. In the latest year, we see a small improvement in the net gap, declining 0.4 percentage points from the high in 2020–21.
Figure 1: Gross and net tax gap percentage - PAYG withholding, 2017–18 to 2022–23
The random enquiry program
In our REP, we randomly select and profile a sample of employers. We estimate the gap by using the incidence rate of adjustments and mean value of amendments resulting from non-compliance. Adjustments refer to changes we make to items on a tax return to correct errors identified in the audit and review process.
This method provides insights into the:
- value of non-compliance
- proportion of the sample, and by extension the population, who are incorrectly reporting.
Findings from the REP
From 2022–23 to 2023–24, we undertook 1,066 REP audits and reviews across a representative sample of the PAYG withholders population, reviewing 2021 and 2022 financial year obligations. These cases informed our estimate for the 2022-23 year.
During the selection process, we stratified the population by large and non-large PAYG withholders, to ensure the overall population was appropriately represented. Employers considered at higher risk of shadow economy behaviour were represented as well as employers with lower risk of shadow economy behaviour.
In the sample, the incidence of adjustment was 6%. While the incidence of non-compliance is low, when aggregated across the whole population, the effect is notable.
What is driving the gap
The PAYG withholding estimate for 2022–23 is based on the REP samples from the 2021 and 2022 financial years. This is the second year we have applied a REP based bottom-up statistical method to estimate the PAYG withholdings gap and it is difficult to provide insights into the trend. A comparison to the previous methods would also be unreliable.
However, case intelligence is gathered allowing us to capture qualitative data that is highly valuable in the understanding of client behaviour.
The most common non-compliance incidents identified from the REP were:
- attempted but missed amounts
- isolated or transposition errors
- careless omissions
- not registered for Single Touch Payroll.
For previously published tax gap figures, see Australian Tax Gaps - Data.gov.au Opens in a new window