COSBOA provided a submission to the Standing Committee on Tax and Revenue who are conducting an inquiry into Taxpayer Engagement with the Australian Tax System.
Please see the COSBOA submission below:
Inquiry into Taxpayer Engagement with the Australian Tax System
We do well on the World Stage
We should first acknowledge that the problem of the ‘cash economy’ or ‘black economy’ in Australia is not as bad as in most other countries. It is indeed a problem that must be confronted and fixed but the story that is told to our citizens should be one where we know the great majority of businesses and workers, consumers and producers, farmers, and people in general follow the law and pay their taxes and do the right thing. Therefore, given that most are compliant it is incumbent upon the majority to support activities that stop the small minority from taking advantage of trust and freedom.
Most taxpayers in Australia pay their tax seamlessly and without fuss. This is either through PAYG in the pay system, or GST on purchases. The great majority of Australians do their annual tax returns honestly and on time.
The business community is also in the main compliant with tax. Business tax is by its nature more complicated and this creates complexity that causes mistakes and for the dishonest it also creates opportunity for fraud. COSBOA works closely with the ATO to confront the fraudulent behaviour, as do many other industry associations. We also work to improve communications and process for the small business community.
It is also worth noting that the processes involved with Australian tax have been streamlined so that lodging tax returns is much easier than a decade ago.
There are several ways of addressing the issue of cash and non-compliance with the tax system.
increase the capacity of the key regulators to police the finance and tax systems;
remove complexity from systems associated with finance and payments to allow for easier regulation and easier compliance;
increase automation of the relevant systems;
ensure that all citizens are aware of their responsibilities;
increase sanctions for those doing the wrong thing; and
increase awareness of the negative impact of those doing the wrong thing, ie higher taxes for honest people and/or less funds for the basics such as education and health.
Work with the Regulators
There is a need to increase the capacity of regulators, in this case the ATO, ASIC, APRA and the police, to identify and prosecute those who deliberately and illegally dodge tax. This increase in capacity does not necessarily mean extra resources but it does mean the right resources and improved techniques which must be developed and applied. Australia has some of the world’s best regulators and this should be acknowledged as one reason why our black economy is not as big or well developed as others but regulators always need to be reviewing their performance and assessing new threats to the system.
Use of Technology
An underpinning change that is needed is removal of complexity, at least overt complexity, and the continued development of suitable technology.
For example the ‘pay wave’ technology has removed a lot of cash payments from sales processes. The further development of that type of technology continues and will add further to removal of cash. There are other ways to change the system so it is easier to regulate, easier to comply as well as easier to run a business.
Another example is the development of eInvoicing which will create seamless movement of financial information between businesses. This will expedite payments and also provide time saving for businesses who will no longer need to type and retype invoices or use PDFs and the like to communicate B2B. This will also facilitate B2G2B activities when all governments get in touch with modern business practices. After eInvoicing will come eBilling and other improved communication processes.
This development then provides regulators with the opportunity to reward those who use transparent and compliant accounting and sales systems by less contacts and questions. It also provides regulators with the opportunity to identify businesses who do not use these systems and ask them why?
Compliance is a Societal Issue
The message of compliance is for everyone not just businesses. A potential employee who will only work for cash (a big issue in the hospitality industry) is as flawed as an employer who offers cash. A customer who asks ‘how much for cash’ needs to be challenged as much as a businesses who offers a discount for cash. If we do develop ‘dob in lines’ to report offenders then we need to be ready to report everyone not just business people. A person receiving a government benefit who rorts the system will have an impact on our financial and tax system as will a business person who does the same thing. There is no excuse for fraud and this must be a message for all not just for some.
We understand that businesses that deal in ‘cash only’ are not necessarily doing the wrong thing but we also understand that questions need to be asked.
Accepting that the black economy is a societal problem and not a business problem is important as we need to achieve society wide change if the problem is to be confronted.
Removing Complexity for Business and for the Regulators
It is true that a complicated, complex regulatory system will do three things:
It creates confusion and the opportunity for honest mistakes to be made;
It creates an environment where dishonest people can find ways of muddying the water and gaming the system; and
It makes regulatory activity more difficult and time consuming.
Any taxation system by its nature will have complications and in certain areas of tax law great complexity. But that doesn’t mean complexity is OK. For example when the GST was first introduced it was a much more complicated process but over the years we have made lodging and collecting mush easier, we have simplified the system. So as mentioned above eInvoicing will also help simplify the system.
There are other activities presently being undertaken that should also simplify the system make compliance easier and make regulation less complicated. Single Touch Payroll is a good example of a process that may be complicated within the software but is much simpler for a business. STP is not yet perfect and we need to make sure it functions well but it is the way of the future.
One other area where we can remove complexity is in superannuation collection. Currently businesses will collect super on behalf of employees and send it off to funds or to a clearing house on a monthly or quarterly basis. In this process the superannuation funds themselves are unregulated as fund collectors and show scant regard for the time of the business owner or for the calibre of communications and processes they employ. This then creates a situation where the funds have no idea how much money is owed to them, the fund owners (the employees) are confused, a dishonest employer will find it easier to scam the system and honest employers (the majority) will be accused of mistakes they haven’t made. It is indeed a shemozzle. This is easily fixed by placing superannuation into PAYG payments that go to the ATO thus removing complexity, adding certainty for employees and putting the superannuation funds back in their place as financial institutions not as unpaid beneficiaries of the free time of the small business community.
Another example where complexity can be removed and temptation also removed is with rules governing employment of school leavers, visa holders and welfare recipients. Currently it is confusing on how long people can work as a minimum, how long visa holders can work and what welfare recipients can earn before their welfare payments are decreased. Make these issues less complicated and there will be less people asking for cash or receiving cash.