ATO fills in more of tax gap picture | KPMG | AU

ATO fills in more of tax gap picture

ATO fills in more of tax gap picture

Andy Hutt reviews the ‘tax gap’ measures released by the Australian Taxation Office (ATO) recently.

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Director, Australian Tax Centre

KPMG Australia

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On 30 October 2017, the Australian Taxation Office (ATO) released its latest information on the ‘tax gap’ between the amounts it believes it should collect, and the amounts it actually collects. The latest release covers Pay As You Go Withholding (PAYGW), Goods and Services Tax (GST) and some lesser indirect taxes.

For the first time, the ATO has sought to calculate the impact of the so-called black economy on the PAYGW gap. It estimates that for the 2014-15 financial year, the black economy contributed around $2 billion (or 38 percent) to the gross PAYGW gap of $5.4 billion. After ATO compliance activity, the net gap has narrowed to $3.1 billion, or 1.9 percent of the amount the ATO believes it should have collected if all employers did the right thing.

This percentage is close to the most recently published United States (US) and United Kingdom (UK) assessments of their net gap in relation to employee tax withholding, which were also between 1 and 2 percent.

Australia’s net GST gap has nudged upwards from 6.7 percent in 2014-15 to 7.3 percent in 2015-16, resulting in a net gap of $4.5 billion. This compares favourably to the most recently published data of those other countries who publish these statistics (see table below). However the ATO does not specify the estimated black economy impact on the GST gap.

 

 

AUS
2015-16

UK
2014-15

Sweden
2011

Denmark
2012

GST/VAT
(% net gap)
7.3 10.3 13.0 6.1

 

The ATO published the tax gap in respect of large corporate groups (with income of $250 million or greater) earlier in October. The net gap had remained steady at 5.8 percent for 2014-15. The ATO has not released any information on the corporate income tax gap relating to entities with turnover of less than $250 million per annum.

The ATO is publishing information on the different components of the tax gap on a gradual basis, and is working with external consultants to make the estimates as accurate as possible.

Information is not yet publicly available on the contribution to Australia’s aggregate tax gap of unincorporated businesses (for example self-employed), or of self-assessed items such as capital gains. In other countries where similar estimates are available, they have received considerable attention.

The UK most recently (for 2014-15) estimated its tax gap in relation to self-assessed personal taxes (that is, income and gains that were not subject to mandatory tax withholding) at 19.2 percent. In its most recent published data, the US Internal Revenue Service (IRS) estimated that self-employment and other non-wage individual income was the source of over 80 percent of its aggregate tax gap.

 

% AUS
2014-15
UK
2014-15
US
2008-10

Personal income

Self-assessment*

PAYG/PAYE*

 

n/a

1.9

 

19.2

1.1

 

15.0

1.0

Superannuation 5.2 n/a n/a
Large Corporates 5.8 5.8 5.0

* US figure is a KPMG estimate based on IRS published data for the years 2008-2010.

 

It will therefore be interesting to see what additional tax gap information the ATO publishes in future.

 

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