ATO’s net GST gap calculated for 2019-20 is estimated to be 7.8%, resulting in the ATO receiving over 92% of the GST revenue that was expected to be collected, the bulk of which was collected voluntarily. The result of the favourable tax performance is largely due to ATO using technology and data to drive voluntary compliance. As ATO is one of the most digitalised revenue authorities in the world, they have focused on their GST risk model initiative in the last 12 months.

The project has provided efficiencies and improved accuracy, resulting in a 21% increase in GST collections and a 6% decrease in costs associated with collecting GST. For ATO, the cost to collect AUD$100 of GST is AUD$0.71 in 2021-21, which is a significant drop from AUD$0.92 in 2019–20. For Inland Revenue, the same metric isn’t measured, but to give you a rough idea, the average cost of processing GST returns in New Zealand was $1.86 in 2020-21.

Below are some of the initiatives that ATO has focused on to improve the GST gap.

As part of their initiatives, ATO focuses on continuing to modernise and improve the capability to manage GST compliance risks, with contemporary risk models to mitigate the following:

• Not meeting the 4 pillars of tax compliance – registration, lodgement, payment, and correct reporting.
• Industry and structural risks – real property transactions, financial services, and insurance, refund integrity, international and cross-border, and evasion.

The initiative also sees ATO using analytical risk models to detect suspect refunds and under-reporting of GST, resulting in raising AUD$509 million from compliance activities, significantly exceeding the target of AUD$284 million. In addition, ATO has also checked whether taxpayers are correctly registered which then detects and deters GST refund fraud in the community by gathering intelligence. In the past year, ATO has checked more than 22,900 GST registrations, resulting in 12% of these being cancelled and more than 360 enterprises being referred for further investigation.

The report also outlines how ATO engages with Top 100 and Top 1000 multinational businesses for GST assurance reviews. They apply the GST Analytical Tool (GAT) to the top 100 and top 1000 GST assurance reviews which provides a strategic, top-down view of a taxpayer’s GST performance. It is used to identify and understand key variances between accounting figures reported in audited financial statements and GST reported in their returns.

ATO encourages taxpayers to embed the GAT in their governance framework as it provides a check as to their GST outcomes. ATO notes that taxpayers have found benefits in applying the GAT to their systems, and they have subsequently picked up issues and made changes to improve correct GST reporting.

Along with the GAT, ATO also continues to review the following important elements from the top 100 and top 1000 taxpayers in the taxable supply industry:

• GST governance
• Determining the extent of creditable purpose
• Reduced input tax credits
• Reverse charges
• Correct reporting

Through improved GST governance, and the taxpayers undertaking more regular and robust data and transaction testing, ATO expects to see fewer inadvertent pre-lodgement system errors.

For more details on ATO’s Top 100 program, please refer to the article written by Deloitte Australia here.

Inland Revenue’s recent Business Transformation project has meant that their systems are more resilient and able to handle larger data sets and transactions than previously. Along with their new systems and more automated process, the compliance teams are using more data analytics to screen GST returns and refunds.

The evolving use of analytic reviews and the increased use of these tools by Inland Revenue has enabled businesses, assisted by their advisors, to gain more visibility and control over their indirect tax profile and compliance processes.
Because of the increased analytics capability, there will be a greater focus on using data to identify the high-risk areas and industries, one example being real estate agents - this is further explained in our May 2021 article. This approach could easily be rolled out for any other industry that Inland Revenue identifies as being an area of concern. Accordingly, all taxpayers should be thinking about the insight that data analytics will give Inland Revenue into the tax they pay and their tax compliance processes.

We encourage anyone in the industries mentioned above, or who cannot recall the last time they refreshed their GST governance to consider having a GST review. Deloitte has developed a software solution, the GST Analytics review, which uses a proven methodology that is constantly evolving to keep up with the latest market and technology developments. Our methodology involves a detailed interrogation of accounting systems to provide comfort that transactions have been treated correctly from a GST perspective, identify specific risk areas and highlight opportunities for GST savings.

Identifying areas of GST risk and opportunities now means that you can take control of reviewing your indirect tax implications before Inland Revenue’s refined data analytics can undertake a review or audit.

Please reach out to your usual Deloitte advisor if you wish to discuss the GST Analytics tool or understand more about how we can help you gain visibility and control over your tax profile and compliance processes.