Personal Taxpayer Compliance Costs : Recent Evidence from Australia

Tax compliance inevitably requires taxpayers to incur costs, often significant, to fulfill their tax obligations. This paper reports on the tax compliance burden of Australian personal taxpayers in the 2011-12 tax year, using the refined Sandford methodology. The scope of the study is confined to individual taxpayers whose main income is not derived from self-employment. Unlike previous studies, the taxes under study in this paper are inclusive of all taxes imposed by the federal and state/territory governments. Random sample selection was made possible with the assistance from the Australian Taxation Office (ATO). The survey of just over 4,000 individuals was conducted in late 2012, using international best practice. The response rate is acceptable and the data is shown to be representative and free of non-response bias. Average tax compliance costs are derived from sample data, and these results are combined with macro-statistics provided by the ATO to generate aggregate personal taxpayer compliance costs.The study demonstrates that personal taxpayer compliance costs have grown over the past 17 years, whether measured in absolute terms or relative to tax revenue or Gross Domestic Product (GDP). For example, average real personal taxpayer compliance costs (whether gross or net) rose by about 73 per cent in the period from 1995 to 2012. Most of the increase in tax compliance costs is attributable to the costs of tax advisers. The findings of this study suggest that various technologically driven simplification initiatives undertaken by the government (such as e-tax and pre-filled income tax returns) have not been sufficient to slow down the growth in personal tax compliance costs