Mind the gap - latest report from the Commissioner of Taxation uncorks a rising alcohol excise gap and compliance issues for fuel tax credits
This week the Commissioner of Taxation released his annual report for 2024-25, which covers the performance of the Australia Taxation Office (ATO) over the financial year, information about their priorities, workforce and culture, governance and accountability, as well as how they contributed to Australia’s tax systems during the year.
We reviewed the information published in this report with a focus on excise, wine equalisation tax (WET) and fuel tax credit (FTC) perspectives for the recently published 2023-24 financial year data.
An area that consistently draws attention is the ‘tax gap’, which is a measure estimating the difference between what the ATO expects to collect and the amount that would have been collected if every taxpayer was fully compliant with the law, which provides valuable insight into compliance trends and highlights where risks and opportunities may exist across the tax system.
Analysis from an excise, WET and FTC perspective
The report reveals some interesting insights into the tax gaps from an excise, WET and FTC perspective:
- Alcohol Excise: For the third consecutive year, the net alcohol excise gap as risen. It presently stands at 9.7 per cent, which corresponds to approximately $861 million in excise that the ATO believes should have been collected if all taxpayers were fully compliant.
- WET: Tax gap data was not published for the 2023-2024 financial year, but prior year tax gaps were relatively stable at approximately $50 million but notably with $5 million in interest applied for each of the past two years for WET related liabilities.
- Fuel excise: The fuel excise gap remains relatively low as a percentage at 1.8 per cent ($446 million) from a relatively small number of taxpayers.
- FTCs: A tax gap of 3.7 per cent ($345 million) was within the ATO’s desired target range of under 4 per cent, with the ATO noting, “The tax gap measures both under- and over-claiming of fuel tax credits. Some taxpayers underclaim due to poor record-keeping, uncertainty about their entitlements, or the complexity of the rules. Others over-claim because of flawed apportionment methods, system errors, misunderstandings or fraud.”
Overall, excise refunds have more than tripled since the 2022-2023 financial year, up from $10 million to $36 million, indicating that taxpayers may be inadvertently overpaying excise or taking conservative positions at lodgement times, pending clarification of the correct application of the over 124-year-old excise law. The time and cost associated with refund applications, together with the poor cashflow outcome of paying excise, then later claiming it back, means that getting excise correct at the start is more efficient than future corrections.
On the tobacco excise front, the ATO has removed the tobacco excise from their excise tax gap published figures, citing the “limited ability of the ATO to influence the performance outcome.” The Illicit Tobacco and E-cigarette Commissioner may be providing such data in the future with the assistance of the ATO.
What this means for taxpayers
The rising tax gap for alcohol excise creates more pressure on ATO Officers to raise alcohol excise revenue. As a result, we may see an increase in ATO compliance activities in this space, potentially with the taking of more aggressive positions where the law is open to interpretation or where the Commissioner chooses not to grant a statutory permission, with a view to recovering more alcohol excise revenue.
Meanwhile, FTCs remain a complex matter for many taxpayers, with the ATO noting, amongst other things, that the complexity of the fuel tax credit rules themselves, flawed apportionment methods, system errors and misunderstandings as the reasons for variances.
Businesses should proactively review and refine their processes and documentation to ensure accuracy, strengthen compliance, and minimise risk exposure.
How BDO can help
This report underscores the ATO’s heightened scrutiny on revenue collection. BDO offers tailored support to help businesses navigate these evolving compliance challenges with confidence. Our customs, international trade and excise experts can provide businesses with support in:
- Providing advice on excise / WET beverage classification, the Alcohol Manufacturer’s Remission Scheme and excise permissions and licences to reduce risk in your business
- Reviewing your business within the context of available excise, WET and fuel tax credit refunds
- Providing advice on the appropriateness of fuel tax credit methodologies and related technical questions
- Assistance in the event of ATO review or audit.
Contact us today to learn more about how we can support your business.
