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Challenges and opportunities for a new decade in Tax Administration

Last updated 22 November 2021

Chris Jordan AO, Commissioner of Taxation, Australian Taxation Office
Speech delivered to the 14th International ATAX Conference on Tax Administration
23 November 2021

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Hello, thanks for having me here today.

I was due to speak to you all in April of last year, but like a lot of things last year, that didn’t go to plan.

We have all been through a lot since then. But it’s good to be here today, in person, with so many trusted and respected peers. Naomi Ferguson from New Zealand Inland Revenue Department will be speaking after me. I know Naomi very well, we catch up regularly as Bureau members of the OECD’s Forum on Tax Administration, and our administrations collaborate regularly to support each other and share best practice. The ATO and IRD also work closely together with international organisations to support important capacity-building work in our region. I’d also like to welcome delegates from the Asian Development Bank Institute, as well as some of my own colleagues from the ATO.

I’m pleased to be here today, to reflect, and look forward to the challenges and opportunities of tax administration in the future.

As Australia heads towards a hopefully more settled period, there is still a degree of uncertainty that looms large over all of us.

But whatever the future holds, we know we will need a tax system that can adapt and evolve along with the needs of the Australian community.

Laying the foundations for the tax system of the future

The ATO has been on a transformation journey for a number of years. When I first joined in 2013, I had a mandate to reinvent the organisation. I spent the first 6 months listening and engaging with staff, and the next year consulting across all segments to make sure we truly understood what people wanted and needed from us.

From this consultation, we launched our ‘2020 Vision’ and Blueprint for Reinvention. The vision aligned with where I wanted the organisation to be at the end of my first term – putting the staff and client experience at the centre of everything we do. We drove improvements in digital systems, the way we use data, and how we engage and support taxpayers to meet their obligations.

By 2018, we had made significant progress and to keep up momentum, we refocused and launched our new vision ‘Towards 2024’, guided by two aspirations of:

  • building trust and confidence, and
  • being streamlined, integrated and data-driven.

It was our commitment to this transformation which put us in a strong position when the government called upon us to deliver the COVID-19 stimulus measures.

We had the data, the systems, the staff culture, the client relationships and the reach to deliver billions of dollars to Australians in a short amount of time. We designed the programs around the data we held and the systems we already used, and this not only facilitated their fast and efficient delivery, but importantly, ensured their integrity.

The rollout of JobKeeper delivered $89 billion in economic support alone. Our administration of the temporary early release of superannuation and cashflow boost stimulus measures released another $39 billion and $36 billion into the economy. This provided much needed funds to support Australians during a very difficult time.

While we can’t know for sure what the next 10 years will hold, we do know that to keep pace with the world around us we will need to continue to utilise digital and data to support taxpayers and encourage willing compliance in an environment where we are increasingly asked to do more with less.

As the saying goes, ‘the future is now’ and nothing is truer in the post-pandemic world of tax administration, where we have seen rapid change across all aspects of life, and the community expects even more from us.

We’re aiming to build greater trust with the community by demonstrating we are an effective tax administrator and tailoring our engagement with taxpayers based on their needs. We’re simplifying interactions with us, embedding what we can into natural systems so people can get things right up front, and with minimal intervention from us.

We cannot rely on audits alone to maintain the integrity of the tax system, so fundamental to all of this is how we use digital capability and data –to build systems that make it easy for taxpayers to get it right (and hard not to), and allow us to better analyse where someone needs a nudge in the right direction, or a firmer hand.

However, when we rely so much on data and digital, there are some very real challenges too. How do we protect our data from increased cyber security threats? How do we protect our tax system from increasing globalisation? And how do we respond to emerging investments like cryptocurrency?

Today I am going to reflect on how we are already ready to rise to the challenges and opportunities of the next decade in tax administration.

Tailored engagement based on tax performance

We know the key to an effective tax system is a high level of willing participation and where most taxpayers are honest and try to do the right thing. The majority of Australians do that now; and we must encourage that predominantly compliant attitude to continue by providing the right systems and support.

Using our tax gap information and insights across all markets has become fundamental to the decisions we make about our approaches. It helps us understand more about those who are and aren’t complying so we can tailor our engagement strategies and direct our resources to maximise effectiveness.

We have learnt that with large businesses, working in a collaborative, open and constructive way is far more productive than auditing after the fact. Under our Justified Trust program, we work one-on-one with the largest economic groups in Australia to assure that they have paid the right amount of tax. We continually monitor the ‘Top 100’ largest public and multinational businesses, and 80% have achieved medium or high assurance.

The Top 100 is the most intensive of all the programs, and organisations that have achieved this standard can be proud of the achievement. Achieving ‘Justified Trust’ means the ATO can take a less intensive monitoring approach, and it forms a strong foundation for future engagements. This is important at two levels. We assure compliance with those taxpayers who have the largest economic impact, and we provide the community with confidence that large businesses are paying the right amount of tax.

We have observed an increase in the currency of a high justified trust rating, with many companies now publishing their rating as part of their economic contribution reports, supporting an organisation’s social licence to operate. We have extended our approach to the ‘Top 1,000’ public and multinational businesses and the ‘Top 500’ and ‘Top 5,000’ largest and wealthiest private groups, and we expect the number of entities achieving high assurance to increase further as we continue this work into the future.

Our approach with the other markets is completely different. In markets where we have millions of taxpayers, we don’t have the time or the money to actively engage with each taxpayer. Technology and data do the heavy lifting and they do it better than we ever could before, directing our investment to the right places and having a significant effect on the bottom line.

We know that most people do the right thing – in fact, tax performance in the individuals and small business sectors is strong, with little or no intervention from us. Individuals tax performance is approximately 94%, and small business income tax is around 87%. Through our various strategies to address the tax gaps, we have developed a strong understanding of the levers that can improve tax performance. This informs our focus on early intervention and on helping taxpayers and their tax professionals get it right up-front, with the right guidance, systems and support.

Our Nearest Neighbour initiative in the individuals market allows us to compare information clients enter into their tax return with the income and expenses data entered by other people in similar occupations and locations. Where there is a significant difference, we can ‘nudge’ the client in real time and prompt them to check their figures.

During Tax Time 2021, nearly 370,000 taxpayers were prompted to review their work-related expense deductions based on comparisons to individuals with similar jobs and expenditure. These prompts caused taxpayers to make adjustments estimated to have a revenue impact of approximately $37 million.

This is just the beginning of what data can do to help us manage the individuals and small business markets, and over the next decade we will need to go much further in how we make the most of the data we have available to us.

Greater use of data and digital across all areas

Our end goal is seamless, streamlined engagement and interactions using digital systems supported by data and analytics. Data underpins our culture of service, our early intervention activities and our goal of prevention rather than correction.

A greater use of data and digital not only empowers us, it empowers our clients. It improves taxpayers’ capability when it comes to managing their own tax and super affairs and it improves the information tax professionals have available to them when helping and advising their clients.

We receive, match and pre-fill increasingly large volumes of data from a variety of third-party providers. In 2021, we pre-filled over 89.5 million pieces of data and we’ve expanded our data matching protocols to get more data from third parties to assist with emerging investments like cryptocurrency. In a sector that is growing rapidly with new investors, we can’t rely on taxpayers knowing they need to keep records of their investment income and capital gains and disclose it on their tax returns. Acquiring data from sources like Cryptocurrency DSPs, share registries and brokers, and pre-filling this data to prompt clients when they lodge means we raise awareness of their responsibilities when it matters most.

The implementation of Single Touch Payroll (STP) has been hugely successful, and that data made our quick and accurate delivery of stimulus payments as part of the COVID-19 response possible. It works with payroll software to allow reporting to happen as part of the payroll process, sharing data about salaries and wages, pay-as-you-go withholdings, and superannuation directly to the ATO. As of 31 October 2021, 806,000 employers were reporting through STP, covering 12.8 million employees.

We are working hard to improve the way we collect, manage, share, and use data, but we are just scratching the surface. The more sophisticated we become with our use of data, the more we know about our world and the better we can target our support.

Building security and assurance into our digital systems

Of course, operating in an increasingly digital environment means we have to consider how we safeguard our data from ever-evolving cyberthreats and data breaches. We possess one of the largest and most comprehensive data stores in Australia. We are entrusted with protecting the community’s personal information and this trust underpins the whole tax system. Protecting our data and digital systems is a massive undertaking and a responsibility we take very seriously.

We defend against more than two million attempted cyber intrusions each month, and in peak months this will rise to over 3.5 million intrusion attempts.

In an increasingly volatile global technology environment, we know that the odds are stacked in favour of potential attackers: while they only need to find one weakness to gain access, we have to defend against them on all fronts. So it’s crucial that we remain proactive and keep pace with local and global developments to continually improve the safeguards we have in place. We have implemented strong and robust cybersecurity measures which are a crucial part of defending the very complex and sensitive systems we administer, and we are continually reviewing how we can leverage new patterns and technologies. This includes using behavioural analytics to support our insider threat identification processes, and using artificial intelligence and machine learning to improve early identification of cyber threats.

While our systems are some of the most resilient out there, we will always continue to innovate against cyber threats, harness adaptive technologies and pragmatically embed security into our systems and processes.

Increasing and closer collaboration between authorities

The increasing globalisation of business adds another layer of complexity for tax administrators, and it demands appropriate responses through continuing growth in the scale and scope of international co-operation. Sharing knowledge and data between tax administrations and key stakeholders in financial systems has never been more important as the global economy continues to grow exponentially across all borders and jurisdictions.

We invest time and effort into our international partnerships because we know a contemporary tax administration cannot exist in isolation from other jurisdictions.

The Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) brings together 42 national tax administrations and has been instrumental in tackling international tax evasion since its formation seven years ago.

We also have numerous tax treaties and agreements to support collaboration, and a key role in the Joint Chiefs of Global Tax Enforcement (the J5). Our Deputy Commissioner Will Day is one of the five chiefs that heads up the taskforce and is joined by leaders of tax enforcement authorities from Canada, the Netherlands, the United Kingdom and the United States to increase collaboration in the fight against international and transnational tax crime and money laundering.

The J5 is currently involved in tens of operations involving sophisticated international enablers of international tax evasion and crime, tackling associated money laundering and disrupting other international financial crimes.

You are probably aware of reports of a global day of action by the J5 in 2020 in relation to suspected facilitation of offshore tax evasion. The action occurred as part of a series of investigations in multiple countries into an international financial institution located in Central America, whose products and services were believed to be facilitating money laundering and tax evasion for customers across the globe.

A more recent example of this co-operation in action is the charging of 10 individuals in New York alleged to be involved in an elaborate multi-million dollar investment and impersonation scheme to defraud investors and launder these proceeds of crime in countries around the world, including Australia. These crimes undermine the integrity of the tax and super system, but the increasing and closer collaboration across international borders means that no one is beyond our reach.

Alongside this, we have seen major data leaks such as the Panama and Paradise papers, and the most recent and biggest leak in history, the Pandora Papers. All of this contributes to the already vast store of data at our fingertips and makes it harder for Australians trying to stash cash or assets offshore to avoid their tax obligations. We have taken action and will continue to do so in relation to those named in these papers. Our effectiveness in fighting international tax crime will only grow as our collaboration, sharing of data and responding to international threats improves.

This work has also attracted the attention of intelligence agencies around the world. The intermediaries who facilitate the transfer and hiding of funds from international tax crime also have links to funds from arms dealing, drug trafficking, people smuggling and terrorist financing. It is gratifying to know that our work analysing criminal networks has value beyond the identification of tax crime.

We’re also working together with our OECD partners to take on the strategies used by multinational companies to exploit gaps and differences between the tax rules of different jurisdictions internationally. In October, a minimum global level of corporate tax of 15% was agreed to and will redirect some of the taxes that large multinationals pay to the countries where their products or services are sold, instead of the taxes going only to the country they’re headquartered in. This move is important because we need to stop multinational corporations from shifting their profits to low-tax countries. It is also important because it goes back to one of the key barriers to willing compliance. If individuals think large corporates get away with not paying their fair share, then why should they? Everyone needs to pay the right amount of tax in Australia.

Looking ahead

In ten years time I will have long finished my tenure as Commissioner. But I will see these things through to 2024, and I am confident that the ATO is already well on its way to achieving our aspirations of building trust and confidence, and being streamlined, integrated and data-driven.

I am proud of our delivery of the COVID-19 stimulus measures. We have proven the capability of our people and systems mean we are ready for the challenges of the time – whatever they may be.

Encouraging willing compliance through improvements in digital and the way we use data have been at the centre of everything we do for some time now. We will continue to focus on tailored engagement with taxpayers, improving our digital systems, and using data to guide us.

Our achievements over the last 18 months have demonstrated first-hand to the government and community how a leading tax and superannuation administration contributes to economic and social wellbeing.

Tax is a necessary and important part of life, but it doesn’t have to be difficult. That is the future, and we are on our way.

Thank you.