Recognising Non-Compliance: Australia‘s Regularly Estimates Tax Gap

JAKARTA, DDTCNews - The Australian Taxation Office (ATO) uses tax gap estimates as an instrument to support the formulation of tax policy and administration.

ATO Director, Allan Partington, said the organisation has been using tax gap estimates as an instrument to detect non-compliance risks, measure the value of tax uncollected due to non-compliance and determine how to mitigate such non-compliance. Tax gap estimation was first carried out in 2012.

"A tax gap estimate is like a mirror. It allows the ATO to review what is working effectively and what is not, where compliance risks lie and the success of efforts to reduce non-compliance," said Partington at the International Tax Conference 2026, as cited on Thursday (17/9/2026).

Without tax gap estimates, the ATO would be unable to measure tax revenue foregone due to non-compliance, nor would it be able to ascertain the source of any additional tax revenue received.

"Without a tax gap estimate measuring the level of non-compliance, it would be very difficult to determine whether an increase in revenue was caused by the efforts of the authority or by economic growth," said Partington.

The ATO defines the tax gap as the difference between the amount of tax it expects to collect and the amount that would have been collected if every taxpayer was fully compliant with the law. Accordingly, the ATO focuses its tax gap estimation on the compliance gap.

With regard specifically to the policy gap, i.e., tax revenue uncollected due to facilities, such as reduced rates, tax credits and exemptions, Partington noted that this gap is set out in a separate report known as the tax expenditure statement.

To estimate the tax gap, the ATO predominantly employs a bottom-up approach, supported by data derived from random audits of taxpayers.

Data from random audits are used by the ATO given that such data more accurately reflects the broader population than data obtained from non-random audits.

"We do have data from risk-based audit activities. Under certain circumstances, this data can be used to estimate the tax gap. The issue is that data from non-random audits is not a representative sample of the population," said Partington.

Year on year, the ATO has recorded that Australia's tax gap is contributed to predominantly by individual taxpayers and small businesses.

"Of the tax gap totalling AUD58.2 billion, small businesses account for AUD27 billion, whilst individuals contribute AUD12.5 billion. These two taxpayer segments account for approximately two-thirds of total non-compliance," said Partington.

It should be noted that tax authorities cannot assume the entire tax gap represents potential revenue recoverable by the government. According to Partington, the purpose of estimating the tax gap is to provide a foundation for tax authorities in addressing non-compliance.

For example, if the tax gap is caused by non-payment, where a taxpayer correctly reports their liability but fails to settle it, the appropriate course of action for the tax authority is to improve the handling of tax arrears.

If the tax gap arises from incorrect reporting, whether intentional or otherwise, the tax authority needs to conduct audits or adopt other approaches of an educational nature.

"Even if the value of the tax gap is the same, the response required will differ depending on the form of non-compliance," said Partington. (dik)