For 2020–21 we estimate a net Pay As You Go (PAYG) withholding gap of around $3.7 billion or 1.7% of estimated theoretical PAYG withholding. This means around 98.3% of the total theoretical withholding payable is expected to be collected.
Note: the fringe benefits tax (FBT) system can be considered a component of the broader PAYG withholding income tax on salary and wages regime. When we view PAYG withholding and FBT together, the integrated gap is approximately 2.2%.
This means employers are expected to voluntarily pay close to 98% of taxes related to their employees' remuneration.
The net gap has fallen steadily across the estimation period from around $7.3 billion (4.1% of theoretical withholding) in 2015–16 to around $3.7 billion (1.7%) in 2020–21. This steady decline in the estimated net gap in part reflects the fact that the amount of PAYGW reported by employers continues to grow faster than the theoretical withholding base. The fall in the dollar estimate of the PAYGW net gap in 2020–21 (relative to that for 2019–20) also reflects the impact of income tax cuts which became effective in 2020–21.
Amendments raised from ATO compliance activity generally trended higher to 2018–19. The projected estimates for the latest 2 years are lower, in part to reflect the diversion of resources within the ATO away from compliance activity as a component of the broader policy response to COVID-19.
The gross gap is estimated to fall to $5.1 billion in 2020–21 down from $7.2 billion in 2019–20; and to its lowest level in the analysis period. As a share of theoretical withholding, the estimate the gross gap at 2.3% in 2020–21 down from 3.3% in 2019–20 (after ranging between 3.9% and 5.2% in previous years).
Voluntary withholding continued to steadily increase 95.1% of the theoretical withholding amount in 2015–16 to 97.7% in 2020–21. The aggregate rate of voluntary withholding in 2020–21 (as a share of theoretical withholding) has reached its highest ever level and has a partial effect of reducing both the net and gross withholding gaps.
The PAYG withholding gap forms a part of our overall tax performance program. Find out more about the concept of tax gaps and the latest gaps available.
Table 1: PAYG withholding gap, 2014–15 to 2020-21
Element | 2015–16 | 2016–17 | 2017–18 | 2018–19 | 2019–20 | 2020–21 |
|---|---|---|---|---|---|---|
Population | 859,479 | 871,272 | 873,210 | 857,337 | 903,261 | 1,017,939 |
Gross gap ($m) | 8,871 | 9,714 | 8,497 | 8,184 | 7,218 | 5,100 |
Amendments ($m) | 1,592 | 2,406 | 2,444 | 2,793 | 1,924 | 1,362 |
Net gap ($m) | 7,279 | 7,308 | 6,052 | 5,391 | 5,294 | 3,738 |
Expected collections ($m) | 171,949 | 178,022 | 190,859 | 203,658 | 213,868 | 219,122 |
Theoretical liability | 179,228 | 185,330 | 196,911 | 209,049 | 219,162 | 222,861 |
Gross gap | 4.9% | 5.2% | 4.3% | 3.9% | 3.3% | 2.3% |
Net gap | 4.1% | 3.9% | 3.1% | 2.6% | 2.4% | 1.7% |
Figure 1: PAYG withholding gross and net gap as share of theoretical withholding, 2015–16 to 2020–21
Note: These estimates rely on ABS data and are subject to any revisions subsequently made.