The tax gap is an estimate of the difference between the amounts the ATO collects and would have collected if every Australian taxpayer was fully compliant. The gaps result from a combination of genuine errors, cultural factors, global forces, complexity in business and legal systems, and aggressive tax planning.
The GST tax gap is estimated at $5 billion and is the difference between the theoretical GST liability estimate and the actual GST collected. Although the GST tax gap is the highest of all Australian taxes, Australia ranks relatively well among similar nations that have estimated GST/VAT gaps.
Although no tax system can eliminate tax gaps, the ATO works hard to minimise the tax gaps. Their primary strategies include:
- Enhancing their digital services.
- Improving processes and technology, including data-matching capability.
- Providing advice to government, via Treasury, where they see law reform options.
- Providing guidance and advice to clarify areas of uncertainty, including issuing Taxpayer Alerts.
- Dealing with non-compliance, including investigating aggressive tax planning.