Tax chief Chris Jordan says his black economy task force has been successful in educating small businesses about their obligations.
The ATO's 2020/21 annual report shows that the so-called "tax gap" for small businesses was $12.5 billion in 2018/19, the latest data available.
The tax gap estimates the difference between the amount of tax the ATO collects and it would have collected if taxpayers had been fully compliant with the tax law.
Mr Jordan, the commissioner of taxation, told a Tax Institute event it was unacceptable if people did not fulfil their tax obligations.
"There is no licence to not pay tax. Everyone who makes profit, makes taxable income, needs to pay tax," he said.
"It does impact on businesses that do pay tax. So it's unacceptable."
However, he said the black economy task force had been successful in seeking to educate businesses about their tax obligations and how to fulfill them.
"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."
