The tax gap is an estimate of the difference between the amounts the Australian Tax Office (ATO) collects and what we would have collected if every taxpayer was fully compliant. Tax gaps exist in all countries to some extent. The gaps are said to be the result of cultural and human factors, global forces, complexity in business and legal systems, genuine errors and of course those who take aggressive tax positions.
In October 2017, the ATO Updated their estimates for goods and services tax (GST), wine equalisation tax (WET), fuel excise, pay as you go (PAYG) withholding, and fuel tax credits (FTC). These will be further refreshed and published in October 2018.
This year the ATO has added two new gap measures: superannuation guarantee and large corporate groups income tax.
For 2015-16, the ATO has published the following gaps:
- Fuel excise ($325 million): GAP % – 1.9%
- Fuel tax credits (-$19 million): GAP % – 0%
- GST ($4.5 billion): GAP % – 7.3%
For 2014-15, the ATO has published the following gaps:
- Large corporate income tax ($2.5 billion): GAP % – 5.8%
- PAYG withholding ($3.1 billion): GAP % – 1.9%
- Super guarantee ($2.85 billion): GAP % – 5.2%
- Wine equalisation tax ($4.7 million): GAP % – 0.6%
(Note – Net gap percentage is calculated as net gap divided by estimated total tax with full compliance, tax reported plus the gap)
The following summary, courtesy of the ATO Website sets out the latest gap estimates in alphabetical order (note that the latest data varies depending on the particular gap):
ATO supported findings:
- Fuel excise gap – the net fuel excise gap is estimated to be $325 million (1.9%) in 2015–16. The excise products covered in this estimation are concentrated in an industry with a small number of large taxpayers who we have generally observed to be highly compliant.
- Fuel tax credits – the net fuel tax credits gap for 2015–16 is estimated to be –$19 million (−0.3%). This reflects our findings from random enquiries that suggest the under-claiming of fuel tax credits exceeds the over-claimed amounts. This result is consistent with previous estimate outcomes.
- GST gap – the net GST gap estimate for 2015–16 has trended slightly upwards from previous years to $4.5 billion (7.3%). This rise reflects a stronger growth of the theoretical GST liability estimate relative to actual GST collections. It is the highest gap among the taxes we have analysed to date, but compliance levels are quite stable. Australia ranks relatively well among similar nations that have estimated GST/VAT gaps.
- Large corporate income tax gap – in 2014–15, the net large corporate income tax gap is estimated to be $2.5 billion (5.8%). This trend has been steady for a number of years, and the gap primarily reflects differences in the interpretation of complex areas of tax law.
- PAYG withholding gap – the net PAYG withholding gap estimate for 2014–15 is $3.1 billion (1.9%). This suggests that employers are generally compliant with their withholding obligations. We estimate that employers are paying about 95% of the PAYG withholding they are required to without intervention from us.
- Super guarantee gap – for 2014–15, we estimate the super guarantee gap to be $2.85 billion. This represents 5.2% of the total estimated $54.78 billion in super guarantee employers were required to pay. In 2014–15, superannuation funds reported to the ATO that employers paid $51.51 billion in super guarantee. This represents 95% of our adjusted theoretical super guarantee amount.
- Wine equalisation tax gap – in the 2014–15 WET estimate, we included the payable and refundable WET amounts to generate a net WET gap estimate. A new methodology was adopted that used a random enquiry program. The net WET gap estimate for 2014–15 is $4.7 million (0.6%). This is consistent with our observations of compliance within the WET system.
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