What has changed
We have changed our methodology in 2024 to use a random enquiry program (REP) based bottom-up statistical model to estimate the PAYG withholding gap. Acknowledging this is the first year of applying a bottom-up approach methodology to inform gap estimate results and is subject to further enhancements.
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 take the estimated unreported tax from Step 1 and uplift it to account for amounts that are not detected.
Step 3: Estimate non-pursuable debt
We add estimated non-pursuable debt.
Step 4: Calculate the gross gap and net gap
We combine the amounts determined above for amendments, unreported tax, and non-detection with non-pursuable debt 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 2 provides a summary of each step of the estimation process and the results for each year.
|
Step |
Description |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|---|---|---|
|
1.1 |
Population |
871,272 |
873,210 |
857,337 |
903,261 |
1,017,939 |
1,003,474 |
|
1.2 |
Voluntary expected collections ($m) |
174,766 |
187,378 |
199,126 |
211,877 |
218,568 |
238,048 |
|
2.1 |
Amendments ($m) |
3,231 |
3,464 |
4,381 |
1,987 |
1,383 |
1,905 |
|
2.2 |
Expected collections ($m) |
177,997 |
190,842 |
203,507 |
213,864 |
219,951 |
239,953 |
|
3 |
Unreported tax($m) (see Note) |
995 |
984 |
298 |
2,916 |
3,843 |
3,595 |
|
4 |
Non-pursuable debt ($m) |
621 |
660 |
701 |
735 |
747 |
809 |
|
5.1 |
Gross gap ($m) |
4,847 |
5,108 |
5,380 |
5,638 |
5,973 |
6,309 |
|
5.2 |
Net gap ($m) |
1,616 |
1,644 |
999 |
3,651 |
4,590 |
4,404 |
|
6.1 |
Theoretical liability ($m) |
179,613 |
192,486 |
204,506 |
217,515 |
224,541 |
244,357 |
|
6.2 |
Gross gap (%) |
2.7% |
2.7% |
2.6% |
2.6% |
2.7% |
2.6% |
|
6.3 |
Net gap (%) |
0.9% |
0.9% |
0.5% |
1.7% |
2.0% |
1.8% |
Note: Non-detection is captured within unreported tax component
Find out more about our overall methodology, data sources and analysis used for creating our tax gap estimates.
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 be shadow economy behaviour in this population.
Accounting for non-detection in the gap
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 $5,016 million in 2021–22.
Not all errors are detected through the REP. We account for these by applying a non-detection uplift to the unreported tax liability estimate.
The 2 sources of non-detection for this tax gap relate to:
- PAYG withholding misreporting
- hidden wages.
The unreported tax liability is divided into the above elements, with an appropriate non-detection factor then applied to each portion.
|
Source of non-detection |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 ($m) |
|---|---|---|---|---|---|---|
|
PAYG withholding misreporting (excluding hidden wages) |
154 |
166 |
173 |
194 |
246 |
242 |
|
Hidden wages |
3,763 |
3,951 |
4,160 |
4,321 |
4,489 |
4,773 |
|
Total non-detection |
3,917 |
4,117 |
4,333 |
4,515 |
4,734 |
5,016 |
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 2021–22
The data is presented in Table 3.
|
Year published |
2008–09 |
2009–10 |
2010–11 |
2011–12 |
2012–13 |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2024 |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
0.9% |
0.9% |
0.5% |
1.7% |
2.0% |
1.8% |
|
2024 superseded model |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
4.2% |
3.3% |
2.9% |
2.7% |
1.7% |
0.9% |
|
2023 |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
4.1%. |
3.9% |
3.1% |
2.6% |
2.4% |
1.7% |
n/a |
|
2022 |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
3.9% |
3.6% |
3.5% |
2.6% |
1.9% |
1.5% |
n/a |
n/a |
|
2021 |
n/a |
n/a |
n/a |
n/a |
n/a |
2.9% |
2.7% |
2.4% |
1.7% |
1.8% |
1.6% |
n/a |
n/a |
n/a |
|
2020 |
n/a |
n/a |
n/a |
n/a |
3.0% |
2.9% |
2.7% |
2.3% |
1.7% |
1.8% |
n/a |
n/a |
n/a |
n/a |
|
2019 |
n/a |
n/a |
n/a |
4.2% |
3.0% |
2.8% |
2.7% |
2.2% |
1.7% |
n/a |
n/a |
n/a |
n/a |
n/a |
|
2018 |
n/a |
n/a |
4.3% |
4.1% |
2.9% |
2.7% |
2.6% |
1.9% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
|
2017 |
n/a |
3.7% |
4.0% |
4.1% |
2.9% |
2.7% |
1.9% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
|
2016 |
2.5% |
2.5% |
2.9% |
3.0% |
2.1% |
1.4% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
|
2015 |
2.0% |
2.1% |
2.2% |
2.1% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |