ATO’s latest annual report revealed a tax gap of $2.63 billion or 4.3 per cent for large corporate groups during the 2018-19 financial year.
The tax gap, which is an estimate of the difference between the actual tax collected by the ATO and the amount that would have been collected if taxpayers were fully compliant with tax laws, was $33.51 billion or 7.3 per cent for all federal taxes during 2018-19.
Since 2016-17, the tax gap for large corporate groups has been continuously rising as both a percentage and dollar amount. A tax gap of $1.79 billion or 3.6 per cent was reported for 2016-17 and $2.1 billion or 3.8 per cent for 2017-18.
“There is no licence to not pay tax … everyone who makes profit, makes taxable income, needs to pay tax,” ATO commissioner of taxation Chris Jordan told The Tax Summit this week.
The ATO has “invested a lot of effort, process and oversight on that large corporate market” according to Mr Jordan.
“We would be very surprised if we didn’t know what was going on when they lodge their tax return, so we’re pretty confident,” he said.
“With our justified trust programs, companies at that large level have the money to invest, to work with us to get this justified trust level where we’re not going to be crawling all over them every year because we believe their processes and systems are right.”
Medium businesses with turnover between $10 million and $250 million had a tax gap of $814 million or 6.2 per cent in 2018-19, down from $834 million or 6.0 per cent in 2017-18.
Meanwhile, small businesses had a substantially larger tax gap of $12.5 billion or 12.7 per cent based on a preliminary estimate with a smaller sample size due to COVID-19.
Mr Jordan suggested that the Black Economy Taskforce established by the ATO in 2016 had successfully educated cash-reliant small businesses on fulfilling their tax obligations.
“We explain to people: if you go digital, if you have better records, you will know better,” he said.
“And frankly, it’s difficult for us to know where you stand tax-wise because you’re not really in our system. You might be remitting something but not a lot, you might not even be in the system.”
Percentage wise, fringe benefits tax had the largest gap in 2018-19 at 22.6 per cent and a comparatively smaller dollar amount of $1.13 billion. Similar figures have been recorded in the previous two financial years.
“Those numbers point to a grossly inefficient tax and gives more weight to the argument that it should be replaced,” said Scott Treatt, The Tax Institute’s GM on tax policy and advocacy.
“A simplified tax system could go a long way in increasing compliance with tax obligations.”
The ATO noted in its annual report that, as the tax gap is a lag indicator and estimates for 2019-20 are not yet available, the impacts of the COVID-19 pandemic have not been observed.
