The PAYG withholding gap is the tax shortfall after our active compliance activities and taxpayer self-revisions have occurred.
To estimate the PAYG withholding gap, we use a top-down approach that compares the following for an income year:
- total accrual individuals PAYG withholding minus non-salary and wages withholding
- theoretical withholding from salary and wages, calculated using external economic data, also on an accrued basis.
For the external data, we use compensation of employees (COE) – salary and wages, which is released by the ABS in its quarterly and annual National Accounts. Applying an average rate of withholding to the ABS salary and wages gives us a theoretical withholding tax amount. The difference in percentage terms is assumed to represent the PAYG withholding tax gap (or PAYG withholding revenue loss).
The COE data used to derive the PAYG withholding tax gap estimate is subject to regular revision by the ABS, including for prior years. As such, the PAYG withholding gap estimate should be seen as a current point-of-time estimate. We will need to revise our estimates as revisions to ABS COE data occur.