The latest estimates indicate a significant decline in the estimated net tax gap in 2020–21 (to a historic low of $1,939 million) before an increase in 2021–22 (to $2,845 million). Despite the increase in 2021–22 the estimated net gap remains well below most previous years. The net gap estimates also incorporate our best current estimate of mature non–pursuable debt for each year, including the impact of COVID-19 and Operation Protego.
The net gap for 2021–22 is around 3.6% of theoretical GST if all relevant GST businesses and organisations were fully compliant. This means that expected collections from businesses and organisations are likely to be around 96.4% of theoretical GST.
The improvement in measured compliance partly reflects compositional shifts caused by COVID-19 that have moved spending online and away from components that fully attract the GST. It has also moved spending towards goods rather than services, and away from industries with compliance issues. Compliance was also partly supported by the broader requirements for pandemic support programs.
Despite the lower net gap outcomes, there was a sharp increase in the gross gap (that is, before the impact of ATO compliance activity) in 2021–22. It was estimated to be around $8,754 million or 11.2% of theoretical GST for 2021–22.
This predominantly reflects the impact of amendments associated with Operation Protego. Overall, amendments increased from $3,044 million in 2020–21 to $5,909 million in 2021–22. Of this, just over $2 billion relates to Operation Protego.
Operation Protego relates to fraud whereby individuals applied for an Australian Business Number (ABN) for a business that does not exist and then submitted business activity statements (BAS) fraudulently reporting GST paid on input purchases and seeking to gain an invalid GST credit. We have issued over $2 billion in amendments relating to 2021–22 to address these invalid claims. Some amendments are addressed at a pre-issue stage, that is before being paid out to taxpayers. There are however some refund claims that are amended after being paid to taxpayers. In this instance, the ATO's ability to recover these refunds is lower. This gives rise to increased non-pursuable debt.
We seek to incorporate the latest available information into our gap estimates including revisions to previously published estimates. This updated information comes from internal sources as well as external sources such as the Australian Bureau of Statistics (ABS) which provides important information supporting our estimate of theoretical GST.
This gap forms a part of our overall tax performance program. Find out more about the concept of tax gaps and the latest gaps available.
Element | 2016–17 | 2017–18 | 2018–19 | 2019–20 | 2020–21 | 2021–22 |
|---|---|---|---|---|---|---|
Gross gap ($m) | 6,321 | 6,937 | 7,887 | 5,206 | 4,983 | 8,754 |
Amendments ($m) | 2,599 | 2,672 | 2,869 | 2,175 | 3,044 | 5,909 |
Net gap ($m) | 3,722 | 4,265 | 5,017 | 3,031 | 1,939 | 2,845 |
Expected collections ($m) | 61,139 | 63,613 | 64,862 | 64,523 | 68,683 | 75,420 |
Theoretical liability ($m) | 64,861 | 67,879 | 69,879 | 67,554 | 70,622 | 78,264 |
Gross gap (%) | 9.7 | 10.2 | 11.3 | 7.7 | 7.1 | 11.2 |
Net gap (%) | 5.7 | 6.3 | 7.2 | 4.5 | 2.7 | 3.6 |
Figure 1 displays the gross and net gap as a percentage of theoretical liability over the same period.
Figure 1: Gross and net GST gaps; as percentage of theoretical GST, 2016–17 to 2021–22
Theoretical GST declined in 2019–20 (down 3.3%) before increasing at around its historical average in 2020–21 (up 4.5%) and then accelerating in 2021-22 (up by 10.8%). This profile reflects the compositional shifts in consumer spending as well as:
- GST-able consumer spending (up 5.9% between 2018–19 to 2021–22) rose significantly slower than overall consumer spending (up 7.2% over the same period). Non-GST-able consumer spending growth moderated in 2019–20 but remained around historical trend growth in 2020–21 and 2021–22; and overall was up 9% across 2018–19 to 2021–22.
- The dwellings component of the GST base had a similar growth profile (down 7.9% in 2019–20, up 5.7% in 2020–21 and accelerating by 13.5% in 2021–22).
- International tourism is largely GST-free and declined sharply in both 2019–20 and 2020–21 given the closure of Australia’s international border. As a result, the reduction in the overall GST base associated with international tourism declined sharply in both 2019–20 and 2020–21. A moderate rebound occurred through 2021–22 as international travel resumed but the consequent reduction in the GST base remains well below historical levels.
- Expected GST collections fell slightly in 2019–20 (down 0.5% to $64,523 million) before increasing at more normal rates across 2020–21 (up 6.4% to $68,683 million) and 2021–22 (up 9.8% to $75,420 million). This reflected:
- Expected voluntary collections grew by only 0.6% in 2019–20 (to $62,348 million) — the weakest growth since the GST commenced — and well below the historical average of around 4% per annum. This in part reflected the cashflow pressures for registered GST participants associated with the pandemic response and consequent economic slowdown. Growth in expected voluntary collections moved above its long-term average rate in both 2020–21 (5.3%) and 2021–22 (5.9%).
- Amendments fell in 2019–20 (to $2,175 million) before rebounding to around the trend in 2020–21 ($3,044 million). Amendments for 2021–22 were significantly higher ($5,909 million) reflecting compliance activity associated with Operation Protego.
Lower GST gap outcomes during and after COVID-19 are consistent with the experience reported in the United Kingdom as well as a range of countries in the European Union. A common theme seems that higher GST/VAT compliance may have resulted from government responses to the COVID-19 pandemic including support measures which alleviated cash flow pressures and were often contingent on up-to-date tax arrangements.