Presentation by Michael D’Ascenzo, Second Commissioner of Taxation, to the Asia-Oceania Consultants Association (AOTCA) general meeting, Manila 11 November 2005.
Thank you for allowing me to represent the Study Group on Asian Tax Administration and Research (SGATAR), in my current role as Secretary General of that organisation for 2004/05, at this general meeting of the Asia-Oceania Tax Consultants Association (AOTCA).
THE ATO’S BUSINESS INTENT
To optimise collections and make payments under the law in a way that instils community confidence that the system is operating effectively.
‘Optimise’ is not about chasing every last dollar of revenue, but making intelligent choices about where to best apply our resources.
‘Make payments’ relates to the range of benefits and refunds we are responsible for administering, including the baby bonus, income tax and GST refunds, excise grants, family tax benefits and superannuation guarantee transfers.
Working ‘under the law’ recognises that what we collect and pay is determined by the laws we administer.
‘Instils community confidence’ is an ongoing objective that ensures we have a sustainable revenue collection system. This guides how we go about our job, the choices we make in optimising collections under the law, the efficiency of our processes and the professionalism of our contact with the community.
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The ATO has an operating budget of $AUD 2.4b.
In 2004-05 the ATO:
- collected net tax of $AUD 214b in 2004-05 which represents 89% of the Australian Government’s receipts and over $AUD 35b in Goods and Services Tax (GST) for state and territory governments.
- administered Australia’s direct tax systems (income tax, capital gains tax and fringe benefits tax) and most of Australia’s indirect tax systems (GST and excise),
- administered and collected the superannuation guarantee and superannuation surcharge, and regulated self managed superannuation funds,
- paid over $3.7 billion in industry grants, such as through fuel and energy grant schemes.
The Study Group on Asian Tax Administration and Research is a unique organisation having no formal organisation nor structure, and no charter nor constitution to guide its actions. Yet, it has been functioning commendably since the grouping was initiated by the Philippines and adopted by the Fifth Southeast Asian Ministerial Conference for Economic Development held in Indonesia in May 1970.
SGATAR was born out of a need for countries in the Asia-Pacific region to benefit from each other’s experiences in taxation. Presently, SGATAR has thirteen members, namely Australia, Chinese-Taipei, Hong-Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, the People’s Republic of China, Singapore, Thailand, and Vietnam. The group has been holding annual meetings, without fail, since its first meeting in Manila in 1971 “to exchange information, ideas and experiences in the field of taxation.” Such meetings are hosted alternatively by members with the host providing for the secretariat needs both for the meeting and for the following year, and its head delegate acting as the Chairman of the meeting. Each of the members is represented by three senior tax officials, the head of delegation often being at Commissioner level.
The annual meetings serve as a forum for a discussion of current problems, innovations and research on taxation. The agenda for SGATAR meetings have included: the taxation of non-residents and hard-to-tax groups; the use of computers in taxation; tax avoidance and evasion problems; tax audit techniques; fiscal incentives; schemes to foster honest tax compliance; the management of the cash/underground economy; debt collection practices; e-commerce; and innovations in tax administration.
“As we grew up to be senior finance officials SGATAR became many things to us. It provided us with ideas on what was possible in tax reforms. It showcased innovations in tax administration.”
At SGATAR last year in Sydney we had the benefit of a presentation by Mr David Russell QC representing AOTCA. Since then we have sought to forge good working relationships between SGATAR and AOTCA. My attendance at this AOTCA meeting, and AOTCA’s observer status at the 35th SGATAR meeting in Singapore reflects on-going progress in that relationship.
In my opinion it is appropriate and constructive that there be an on-going working relationship between SGATAR which is a grouping of tax administrations from 13 tax jurisdictions in the region, and ATOCA, the Asia-Oceania association for tax consultants. The reason for this, and the thesis of this paper, is that competent and well regulated tax practitioners can play crucial roles in:
- helping taxpayers understand their rights and obligations under the tax laws;
- co-designing with the tax office, administrative systems which make compliance with the tax laws easier and more certain;
- influencing their clients towards higher levels of compliance with the tax laws; and
- facilitating the lodgment of returns and other tax obligations between taxpayers and the tax administration.
“The management of tax systems is a complex business and is likely to become increasingly so in the 21st century as they are forced to adjust to the changes accompanying globalisation. The popular stereotype of the ‘taxman’ collection the revenue through the process of detecting non-compliance and imposing penalties provides a simplistic account of the realities of modern tax administration... As tax systems are adjusted, the community needs to be educated, persuaded and encouraged to cooperate, long after the vote is cast at the ballot box.”
“The traditional tax infrastructure of law, auditors, penalties, debt collectors, and court cases needs to be supplemented by measures that boost taxpayers’ commitment to paying tax with or without the tax authority watching over their shoulders.”
The success of a tax system is highly dependent on the community’s propensity to voluntarily comply with their tax obligations.
A number of factors impact on that propensity:
- the community’s belief that the tax office is fair, certain and legitimate ;
- perceptions of fairness including:
- the assistance taxpayers receive in relation to their responsibilities under the tax system;
- the ease with which taxpayers can deal with the tax office;
- issues of respect and natural justice; and
- the perceived effectiveness of deterrence strategies.
The recurring themes of:
- excellent service to taxpayers;
- efficient and effective management of risks to the tax system;
- making it easier for people to comply; and
- building community confidence in the tax system and the tax administration,
remain goals for any tax administration.
The ATO’s overall approach to compliance remains twofold. We want to maximise the number of taxpayers who choose to voluntarily comply by making it as easy as possible for them to understand and meet their tax obligations. At the same time we have strategies to deter, detect and address non-compliance.
The ATO’s Compliance Model directs that we better understanding why people are not complying, and that we develop appropriate and proportionate responses. This is why in the Individuals segment, most of our compliance effort goes to providing the information and services individuals (or their agents) need to self assess their tax or entitlements, and lodge their returns. In relation to Large Businesses we provide certainty to them through the public and private ruling systems, and make their reporting obligations as streamlined as possible. However, relative to the coverage of other segments, a high proportion of large businesses and high wealth individuals are subject to audit activities, reflecting the scale of transactions and consequent risk to the revenue.
The Compliance Program 2005-06 is the fourth publicly released program. “Our challenge now is to build on those achievements by encouraging more people into low risk approaches, and continuing to deal firmly with the more egregious cases. By detailing the compliance risks as we see them, and what we are doing to address them, we send a clear message to the community on how to avoid risks associated with non-compliance.”
In response to what the Australian community told us they wanted, the ATO adopted a set of principles to guide the design of products and services under it’s easier, cheaper and more personalised program.
These principles are that, as far as possible:
- taxpayers (and their agents) will be able to do business with us online – whether through our services or your commercial services
- taxpayers and their agents will have online access to information that is personal to their dealings with the tax office
- taxpayers and their agents will deal with a tax officer who has an understanding of their dealings with the tax office
- taxpayers and their agents will receive notices and forms that are clear and that reflect the taxpayer’s dealings with the revenue system
- taxpayers and their agents will receive high quality responses to their issues and interactions along with quick turnaround times
- the ATO will be reasonable about the level of record keeping required that is necessary to practically comply with the tax obligations
- the ATO will facilitate the use of commercial services developed to ease the cost of record keeping and compliance with the law, and
- taxpayers and their agents will experience compliance action which takes into account their compliance behaviour, personal circumstances and level of risk in the system.
Into the future inbound correspondence will be imaged, tracked and made available electronically to all front-line staff. As well as providing a complete view of a taxpayer’s client contact history for contact staff, this will be also able to advise taxpayers of the progress of enquiries and requests they have previously made.
Beyond 2006-07 will see real time processing of more forms lodged electronically. For example, users will be able to receive real time assessments for lodgments including income tax returns and fringe benefits tax returns, in addition to activity statements. This will mean that many people will get an immediate response when lodging these forms on line, with refunds deposited directly into their bank accounts.
Online forms will be increasingly pre-populated with information held by the Tax Office and other government and non government organisations. Forms will also be tailored to the taxpayer’s circumstances. For example, where a taxpayer does not have a GST obligation their activity statement will not include GST fields.
Taxpayers will be able to register, view and update their details online for most obligations and benefits, including elections they have made, such as variations to instalment rates.
Much of our longer-term effort is about integrating our dealings with taxpayers across the full range of their tax obligations.
As well as integrating the experience that taxpayers have with the Tax Office, we are also exploring opportunities with other government agencies. For example, we will build on our data link with the Health Insurance Commission for users of e-tax, and our system’s links with Centrelink.
Australian taxpayers have been ably supported in understanding their rights and obligations under the tax law by tax agents, who also play an intermediary role between their clients and the tax office.
Taxpayers’ reliance on tax agents has gradually increased in Australia for a number of reasons including:
- demographic and social changes such as
- an increasing proportion of non-salary and wage earners;
- an increasing number of taxpayers with non-bank investments such as shares and rental properties; and
- a trend to buy services to increase free time or to deal with a more complex environment.
- the introduction of the Electronic Lodgment System in 1989, and the promise of refunds in 14 days.
- the advent of self assessment in 1986 and full self assessment for companies and superannuation funds in 1989.
- waves of tax reform including the introduction of Capital Gains Tax in 1985 and the Goods and Services Tax in 2000.
- taxpayer perceptions that they are ‘safer’ if they use an agent or that it will minimise their tax.
Today 73% of individuals and 94% of companies choose to use tax agents . As at 31 July 2005, the number of registered tax agents was 25,965. Of these there were:
- 21,571 active agents (who are new or have lodged a return in 2003-04), including,
- 11,671 active agents with 100 or more clients.
In Australia tax agents are regulated by Tax Agent Boards which are independent statutory bodies constituted by legislation. There is a Board in each state and each Board acts autonomously in the execution of its duties. Each Board consists of three members who are appointed by the Assistant Treasurer. One member is an officer of the Tax Office and the other two members traditionally come from the legal and accounting professions. One of the non Tax Office members is appointed as Chairperson of the Board.
The role of the Board is to administer the tax agents’ registration requirements contained in the legislation. The Board is responsible for determining the suitability of applicants to be registered as tax agents, dealing with complaints about tax agents and ensuring that proper standards are maintained across the tax agent profession.
The regulation of tax agents is aimed at protecting the public by ensuring that persons who charge a fee for providing taxation related services have appropriate knowledge of the Australian income tax law, relevant accounting principles, and are otherwise fit and proper persons to be registered as tax agents.
Although there is a tax officer on the Board and the Tax Office is entitled to place submissions before it, the deliberations of the Board are completely independent and the Commissioner of Taxation has no control over the proceedings of the Board.
There are stringent rules regarding registration as a tax agent, requiring a mix of academic qualifications and actual hands-on experience in the workplace. A higher academic qualification results in a shorter work experience requirement however, all criteria include a course of study in Australian income tax law acceptable to the Board.
An application fee applies for all new and continuing registrations. Registration lasts for three years whereupon agents need to re-register with a requirement to show the board they have maintained the same level of relevant employment experience as needed to obtain the original registration.
Most tax agents are members of one or more of the professional associations. The associations have a role in bringing about significant improvements to the tax system by:
- providing expertise and information about the tax system
- shaping and leading debate on issues affecting the profession and the wider community, through advocacy and lobbying
- participating in consultations and providing submission on technical and administrative issues, and
- providing a vehicle for two-way communication with the Tax Office.
The larger professional associations include:
- Certified Practicing Accountants Australia
- Institute of Chartered Accountants in Australia
- National Institute of Accountants
- Taxation Institute of Australia
- National Tax and Accountants Association
- Association of Tax and Management Accountants
- Law Council of Australia
Recognising the critical role played by tax agents we have developed collaboratively with their tax professional bodies a “Strategic Framework for the Tax Office Relationship with Tax Agents.”
Tax agents make a crucial contribution to the operation of the tax system by:
- influencing compliance behaviour
- acting as intermediaries in their client’s interaction with the ATO
- increasing efficiency through high usage of electronic communication and on-line channels; and
- providing information, advice, education and representational services to their clients.
The State of the Industry research we conducted jointly with the tax agents’ Professional Associations showed that agents are now significantly more optimistic about the profession’s future than they were in 2002, with the proportion satisfied with the Tax Office service almost doubling form 2003 to 2005.
The major issues of concern to the profession as reflected in the 2005 survey were:
- complexity and rapid changes to tax legislation, and
- Tax Office lack of understanding of pressures on tax agents.
Other issues of concern to the profession include the compliance burden, the penalty regime, professional indemnity costs and the difficulties of attracting and retaining quality staff.
A focus on involving tax agents, other practitioners and taxpayers in the design of products and services, in the improvement of administrative systems and in the shaping of strategic activites has greatly improved the relationship between tax agents, taxpayers and the ATO.
The ATO’s collaborative approach includes:
- focus groups to generate initial ideas and concepts for possible product or service improvements
- user-centred design where tax agents provide input into the design of products and services which they or their clients will use, and
- forums which give tax agents opportunity to comment and give feedback on various ATO projects or programs.
ATO forums provide an opportunity for a candid exchange of views and for all parties to gain a mutual understanding of their respective situations. This understanding provides a sound basis to identify, discuss and co-design approaches to resolve significant tax administrative issues and commission work in relation to initiatives to support tax agents.
The ATO works closely with the tax practitioner industry to produce products and services tailored to the role that tax agents play. There are currently over 50 forums, advisory groups, expert panels and industry partnerships that have tax agent or professional association representation.
The peak consultative forum is the National Tax Liaison Group, which has been operating for 20 years and has representatives from tax, legal and accounting professional associations, Treasury and the ATO.
The ATO Tax Practitioner Forum reports to the National Tax Liaison Group and deals with the day-to-day administrative and operational issues affecting tax practitioners. Membership includes eight tax practitioners (representing the tax practitioner community), representatives from the major tax and accounting professional association and two representatives from the large volume statement and return preparer groups. The forum meets quarterly and usually holds one meeting in a regional location.
The forum sponsors working parties which concentrate on specific areas of administration, for example, accounting, lodgment and tax reform.
There are also eight state-based regional tax practitioner forums across Australia in Adelaide, Brisbane, Canberra, Hobart, Melbourne, Perth, Sydney and Townsville.
The ATO recognises that tax agents have a commercial relationship with their clients, however it expects them to act in a professional manner, competently having regard to the law and to comply with their personal tax obligations.
In terms of their role as agents for clients the ATO risk assesses tax agent client bases to identify situations where there is a high potential for making common mistakes or inaccurate claims that are outside occupational or industry norms.
There is also an on-going focus on tax agents’ compliance with their personal tax obligations.
In addition, where there is evidence that an agent has breached the requirements for registration, the ATO will refer the matter to the Tax Agents’ Board. In 2004–05 the Tax Agent Integrity Unit reviewed the practices of 254 registered tax agents, with 138 being identified as having serious issues warranting referral to the Tax Agents’ Boards (131) or for fraud investigation or prosecution (7). Fifty-eight of the referrals to Tax Agents’ Boards resulted in formal action, including 7 agents being suspended, 8 receiving a formal warning, 14 deregistered and 19 refused re-registration. A further 10 agents provided a written undertaking that they had modified their work practices.
During 2004–05, prosecutions of tax agents resulted in 197 fines, 19 good behaviour bonds and 6 custodial sentences, ranging from 30 months to 9 years.
Additionally, 161 unregistered tax agent cases were reviewed, with 21 people referred for prosecution. Three of the cases were successfully prosecuted, with other prosecutions still pending. Fifteen people involved in these cases provided an undertaking that they will comply with the law.
To make it as easy as possible for tax agents the ATO has developed a range of products and services including:
- Lodgment Program
The ATO recognises the significant role tax agents play in helping their clients meet lodgment obligations. For this reason, the tax agent lodgment program allows returns, forms and statements to be progressively lodged by tax agents. It takes into consideration agent workloads, revenue obligations and government and community expectations.
The ATO also provides information about lodgment obligations, including the various forms and returns and the required lodgment dates, in the annual lodgment program calendar and in the Keydates for tax agents, Tax Agent and other newsletters. This information is also communicated through eLink and is available on the ATO website.
- The ATO Website – www.ato.gov.au
The ATO website is segmented according to audience. The Tax Professional’s segment gives tax agents and other intermediaries direct access to facilities and information that enable them to interact effectively with the tax office on behalf of their clients. This includes information on technical topics, administrative processes, forms, questions and answers, and minutes from consultative forums. ATO broadcasts, eLinks, TAXAGENT newsletters and seminar guides are also published on our website.
Electronic tools are available to help tax agents determine whether their clients qualify for offsets, calculate the claimable amount, and complete tax returns.
A recent addition to the ATO website is a single point of entry for all new legislative information. This includes links to Bills and explanatory memorandums, press releases and the Treasury and Australian Parliament House websites. This enables tax agents and other practitioners to track the progress of legislation from announcements through to Royal Assent, as well as any retrospective administrative treatment.
- Electronic lodgment service (ELS)
ELS allows participating tax agents to lodge their clients’ tax returns and other tax forms with us electronically. Lodging via ELS has a number of advantages, including:
- immediate acknowledgment of receipt of returns and notification of those not received
- 24 hour/365 days a year access
- ability to lodge documents in bulk via a single transaction
- faster turnaround – most assessments are processed within 14 days
- electronic means to nominate themselves as a client’s representative and update client details
- access to a range of electronic reports from our business systems
Approximately 98% of registered tax agents now use ELS to lodge over 50 different return and form types and request a variety of client reports. The ATO receives more than 19,000 ELS transmissions from agents each week, and an average of 3,500 changes of address/detail transactions daily. Approximately 16.5 million transactions are received each year, including tax returns, activity statements and a range of forms and schedules with 95% of original individual assessments lodged via ELS being processed within 14 days.
ELS software is produced commercially by software providers, who are required to comply with ATO specifications. The ATO liaises with software developers through the Software Developers Consultative Group which provides the ATO and the software industry with a consultative forum to facilitate the development of compliant software.
- Tax Agent Portal
The Tax Agent Portal is a secure website giving tax agents access to a range of information and services online. Since its launch in October 2002 it has been a tremendous success, with tax agents using it on a regular basis. The site was developed and tested via a co-design process with tax professionals and was recognised with the 2003 Certified Practicing Accountants Australia (CPA) Public Sector (QLD) award for excellence in innovation.
It allows agents to:
- have convenient access to client information
- download reports
- submit online forms, and
- easily communicate with the ATO.
There were nearly 10 million log-ins to the portal last year, enabling agents to lodge over 500,000 activity statements and perform other functions online. In a survey of tax agents conducted in April 2005, 92% of agents surveyed stated the portal was the channel they used most to interact with the ATO.
The portal continues to expand its range of features and level of functionality, in response to world best practice, emerging industry needs and ongoing feedback from tax professionals. The ATO has established an Electronic Advisory Group to assist in the identification and consideration of enhancements for the portal and other areas of technology.
- Compliance Program
Each year the ATO publishes it’s Compliance program which identifies the ATO assessed risks to Australia’s revenue systems and the steps it is taking to address them. A copy is sent to all registered tax agents and is also available on the ATO website.
- Compliance Toolkit
The Compliance toolkit is an electronic guide that complements the Compliance program and enables tax agents to assess the impacts of the ATO’s compliance activities on their clients. The toolkit contains detailed information about compliance activities outlined in each year’s program, including outcomes such as industry trends, compliance results and common errors. It also includes information to assist tax agents and clients in understanding how the various audits and reviews are conducted.
The Compliance Toolkit has been recognised as a key communication product for tax agents outlining planned compliance activities on a profession, industry or product basis. This approach to leverage has the probability of covering the widest possible number of tax practitioners and their clients on specific compliance activities the ATO is focusing on.
- Induction package
The induction package introduces newly registered tax agents to the information they need to interact with the ATO effectively and to conduct their practices efficiently. It also helps existing tax practitioners providing an overview of their role within the taxation system and access to the procedural and administrative information they require to act on behalf of their clients.
- Broadcast system
The ATO has developed a broadcast system to enable it to send urgent messages to tax agents as quickly as possible. Broadcasts are delivered by email, fax or post depending on the capability of each practitioner. Most broadcasts are published on the ATO website after issue and a link to recent broadcasts is included through the eLink facility which is a regular email bulletin containing the most recent updates to the website.
- Speakers and seminars
Satellite seminars play a key role in communicating vital information to tax agents and other intermediaries across Australia. Using this technology, allows accessible and consistent messages to be delivered to all tax practitioners. Seminars are held in locations around Australia including regional and remote areas. Approximately 17,000 tax practitioners attend the June seminar, while the November seminar attracts approximately 13,000 participants.
The ATO has also commenced partnering with the professional associations in delivering educational seminars to agents.
- Telephone
Telephone is another key channel of interaction with tax agents and taxpayers. The ATO provides registered tax agents with a premium telephone service through dedicated agent contact numbers, with fast key codes to obtain quick and direct access. As part of its commitment to providing a premium service to help agents manage their workloads, the ATO aims to answer 90% of enquiries within two minutes, with an average waiting time of less then 30 seconds.
This phone service is supported by a published phone card and proof of identity procedures, both of which are sent to all registered tax agents, and are also available on the ATO website.
- Proof of Identity procedures
Tax agents and taxpayers must comply with proof of identity procedures when ever they contact us to access, or update information held on their clients’ accounts. These procedures are followed in order to maintain the security of taxpayers’ information as required by legislation.
- Legal Database
The Legal Database, available on the ATO website, is a collection of legal and policy information which provides access to much of the material the ATO uses when making decisions. The database includes:
- legislation and supporting material
- public rulings, legislative determinations and bulletins
- ATO interpretation precedents
- practice statements
- taxpayer alerts
- tax related case law
- ATO policy papers
- ATO superannuation circulars
- freedom of information index
- schedule of sources of precedential ATO view
The relationship between the tax administrator, taxpayers and tax agents could be characterised as one of mutual dependency. That relationship has as its starting point mutual trust and respect. However, it behoves the tax administration to earn that trust and respect. In all it does the tax administrator needs to ensure that it instils community confidence that the tax system is operating fairly, efficiently and effectively.
Competent and well regulated tax agents can play a critical role in the efficient and effective operation of the tax system, and its integrity, through the influence they have on their clients. There are obvious benefits for the tax administration – allowing it to leverage on a ‘deal with one agent, impact on many taxpayers’ approach. There are benefits for taxpayers who can rely on tax agents to understand their rights and obligations and to interact efficiently with the tax office on their behalf. Through their professional associations tax practitioners have a say in shaping the high levels of service they should expect from the tax administration.
The tax system and the country can benefit from this symbiotic relationship.
Last Modified: Tuesday, 15 November 2005
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