Commissioner's keynote address to the 2014 CPA Congress
Chris Jordan, Commissioner of Taxation
Keynote address to the 2014 CPA Congress
Melbourne, 15 October 2014
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End of attention
Thank you Rob (Thomason) for the introduction and good afternoon everyone. It’s a pleasure to be here today, the first CPA congress I’ve attended since taking over as Taxation Commissioner last year.
Today I’d like to share my thinking and approach to improving the tax and superannuation experience in Australia.
To ensure the ATO offers value and stays relevant into the future, our strategy is to reinvent ourselves and transform how we go about our business. Reinventing the ATO is not just a tag line – it is a purposeful program of work to change the culture of the ATO and improve the client experience. We want to be a contemporary, and more service-oriented organisation, known for our expertise and integrity.
Reinventing the ATO
When I came into the job in January last year, my approach was to question the status quo and ready people for change. This included de-cluttering and reducing our own red tape and setting clear directions in the form of a new mission, vision and values.
Our new directions are driving everything we do and our mission is our centrepiece:
to contribute to the economic and social wellbeing of Australians by fostering willing participation in the tax and superannuation systems
I am going to zero-in on ‘fostering willing participation’. Levels of willing participation in Australia are high. We know this from analysis of our revenue collection which shows that more than 95 per cent of revenue received comes in voluntarily – with relatively little assistance or intervention from us. Less than 5 per cent comes in from compliance enforcement measures. We also know that 90 per cent of revenue is paid on time and over 80 per cent of income tax returns are lodged on time – further evidence of people doing the right thing.
Research by the Centre of Tax System Integrity at the ANU and other academics in the last decade, has also shown consistently that the vast majority of Australians are willing to comply with their tax obligations.
So how do we foster willing participation?
There are many levers that influence people’s attitudes to participating in the tax system; fairness, complexity, social norms, personal beliefs, economic conditions, advice and relationship with their tax practitioner, and the trust and confidence they have in the ATO.
Research and experience also tells us that positive client experiences, good service and strong relationships contribute significantly to building trust and confidence.
Therefore, our hypothesis is that improving the client experience will foster willing participation. And when we talk about client experience we’re talking about customer service aspects as well as the total experience of the system.
Given that most people are willing to do the right thing, we need to recognise and reward this with a lighter touch experience; easier, less complex, and less intrusive. In essence this means designing the system for the benefit of those who do the right thing year in year out, not for those who don’t.
This is not just a challenge for the ATO, this is a widespread issue. My personal observation is that most regulation seems to be designed to catch the minority who do the wrong thing. We need to invert our thinking, respecting and valuing those who do the right thing.
This focuses us on the questions:
- How can we make the client experience better – in terms of service and in terms of total experience of the system?
- What role does the ATO play in all of this?
- What role do others play, what role do you play?
We can guess what would make the client experience better, but asking people will get us the right answers. So we are conducting focus groups with various segments of the community, including business and intermediaries to understand their current experience and how they would like it to change.
We hear that people want:
- To spend less time and effort on complying.
- More digital options, but also the option of talking to a real person.
- To have more certainty and to be able to trust our advice.
- Communication that is better targeted to circumstances, in plain language and in the right tone - when people need it in the form they want.
- Security of data and protection of privacy.
- Better use of data we already have.
- Streamlined dealings with government.
- Use of ‘natural’ systems.
Pleasingly, we have already been able to make some progress that signals we are serious about delivering on promises and gives everyone (internally and externally) confidence we can do it.
Let me run through some examples:
- The ATO app – first released last year, has information for individuals, Small Business and Superannuation.
- MyTax, available via myGov - a new simplified tax return for people with straight forward tax affairs. Almost 2.6 million Australians have already linked their myGov accounts to the ATO and nearly 800,000 have lodged using myTax.
- A variety of new online channels for small business, with our interactive Small Business Assist tool, Small Business Newsroom, click to chat facility and an after-hours call back service.
- Rationalised and improved some of our letters (plenty to go) - using plain English and a more suitable tone, and not sending out needless paper like BAS to people who lodge electronically.
- An online process for consolidating superannuation accounts. Since its introduction in 2013-14, nearly 274,000 super accounts – with a combined value of around $1.240 billion – were consolidated by account holders using our online services.
- A voiceprint to use a simple, less time-consuming and more secure voice authentication process for phone calls - more than 100,000 people have already ‘signed’ up.
- The take up and use – by businesses and tax agents – of software enabled with Standard Business Reporting that:
- pre-fills reports to government with the most up-to-date information in real-time, and
- re-uses information so you only have to tell government once.
- Piloting external compliance assurance process - giving some companies (turnover of between $100m-$5b) the option of using their existing statutory auditor to undertake assurance work on factual matters we have an interest in.
- An early engagement philosophy across the board – early conversations rather than drawn out paper wars. This approach has already reduced the average cycle times from 129 days to 70 and even as little as 40 days in the case of smaller enterprises.
- Increased use of Alternative Dispute Resolution (ADR), with use of independent parties – some in-house facilitators and private practitioners, usually former Federal and High Court judges.
- A new independent review function to encourage earlier resolution of disputes for taxpayers with turnover of more than $250m. This process brings a fresh set of eyes, outside our Compliance group to look at merits of the audit position. (20 cases so far – 12 in favour of the ATO, 8 in favour of the taxpayer.)
- And today I announce our revised Code of Settlement –streamlined guidance, written in a clear, concise and positive way. It sets out the factors to be considered when deciding whether or not to settle. Of course, not at any cost, but where it is beneficial and practical to do so. The revised Code will be on our website this afternoon.
- Lastly, on this list of wins, is our Offshore Voluntary Disclosure Initiative, Project Do It.
More than 1200 people have come forward so far and 700 people have made disclosures of more than $120 million of income and over $700 million in assets.
We want all taxpayers with offshore income or assets to come forward by 19 December 2014. With only two months to go, time is running out for taxpayers to make a voluntary disclosure. There are great advantages in coming forward, so people should do it now, or face the strong possibility of criminal prosecution when we catch them.
On another angle of reinvention, we are taking a fresh look at our compliance approaches. We’re even questioning what we call ‘compliance’. Given that the vast majority of taxpayers willingly comply with their obligations, it is logical that we should focus more on encouragement rather than enforcement, that we should design the system for the majority of people rather than the minority.
We will have a different blend and balance of strategies that are designed to recognise and encourage positive behaviour and appropriately deal with those who choose not to do the right thing. These strategies will be targeted and tailored, based on risk, transparency and behaviour. You will see us put efforts into:
- Making it easier to comply with your tax and super obligations.
- Reducing compliance costs, cutting red-tape, automating and streamlining processes.
- Managing and resolving disputes earlier.
- Working more closely with the tax profession and other intermediaries.
- Advocating change and working with Treasury when we see the law not working as it was intended.
- Demonstrating that we take appropriate action with those who do not do the right thing.
I’ve talked already about a few examples of making things easier, using pre-fill data, cutting red-tape, etc. Let me talk about the other areas of focus.
Taking action with those who do not do the right thing
You may be aware of recent media questioning the ATO’s resolve and capability to deal with those involved in tax avoidance or evasion. I want to assure you we are, and we will, pursue those who fail to pay the right amount of tax, be they individuals, small businesses or large corporations. We are acutely aware that taking action with those who do not do the right thing is critical to community confidence in our fairness and integrity, and ultimately the sustainability of the system.
We are constantly assessing threats to our revenue base, including those posed by large corporations. We know that the majority of large corporates pay the right amount of tax within the current laws. But we do look closely at the amount of tax they pay and what they report to us. If we find inconsistencies or have questions about what is reported, we review, and in some cases audit, a company’s tax affairs.
And when we find evidence of deliberate non-compliance, we take the necessary enforcement actions. That brings me to international tax issues like Base Erosion and Profit Shifting (BEPS as we now call it) and efforts to reform the international tax system.
BEPS, international tax reform and transparency
In a globalised world, multinationals operate seamlessly across borders and take a global, top-down view to structure their operations across countries for maximum economic advantage. As tax administrators, we need to do the same. We will remain at a disadvantage unless we move from taking an isolated, single country view and replace it with a global, bigger picture view.
We have stepped up our efforts to ensure that multinationals pay tax in Australia on the income they earn here. Working with the G20, OECD and other partner tax administrations, we have been mapping the global operations of some multinationals that operate in the digital economy. As a prototype for a new way of working together, Australia has led a project with five other countries to investigate global tax planning by multinationals and share intelligence on their activities.
This unprecedented collaboration is allowing us to better understand and compare financial reporting by multinationals in Australia with what they report in other countries. We are testing their assertions and arrangements as to how they fit with our existing laws.
I welcome the government’s commitment to implementing the OECD Common Reporting Standard (CRS) for automatic exchange of information. The CRS is central to making the exchange of tax information work effectively in combatting offshore tax evasion and assisting in broader tax risk identification.
From about September 2015, a significant step forward in tax transparency will be our publication of information about the tax affairs of large corporates with incomes above $100 million. This information will relate to the 2013-14 income year and will include the entity’s name, ABN, total income, taxable income and income tax payable.
This kind of transparency in tax reporting is something we are working towards internationally, especially in dealing with offshore tax evasion. Australia has over 100 information exchange treaty partners from whom we can collect information about individual taxpayers’ offshore activities. In 2012-13 it is estimated that such exchange of information helped us to collect $480 million in extra tax revenue.
Policy and Law design
Another important item on my agenda is to lift the ATO’s level of influence and quality of input to policy and law design.
Quite clearly the ATO has the advantage of seeing what works and doesn’t in practice and can use those insights to advise Treasury about potential policy and law changes. Our new Integrated Tax Design Unit has been set up to make this happen and to ensure we give good advice based on our observations and input from the community.
Given the complexity and timeframe for law change, we are looking to use administrative solutions when we can. We will use Commissioner’s remedial powers - or Commissioner’s discretion as some describe it to give us some flexibility in interpretation of the law when the words in law do not give the right outcome and are contra to original policy intent.
Working with the tax profession and intermediaries
The tax and superannuation systems cannot work without the tax profession, financial advisors and other intermediaries. Not only do they play a significant functional role, they also play a major role in influencing attitudes towards taxation and superannuation.
We need a productive and open relationship with key professional associations where we can identify and deal with issues early, in a transparent and proactive fashion.
We have revamped our consultation arrangements to make them more effective – cutting out unnecessary, routine meetings and have made room for our people to work with industry experts on specific issues through project-like consultation.
We have been consulting on a range of technical views, active compliance processes, transitioning to the new digital environment, taxation of trusts, the ECAP pilot and design of the future client experience. CPA Australia has been involved in all of these consultations.
An important matter for consultation now is the review of our public advice and guidance - the mix of products, timeliness, the quality and impartiality of public ATO advice and the effectiveness of the Rulings Panel.
Feedback and regular input from you will help us make our advice and guidance more pragmatic and relevant.
I encourage you to raise systemic matters that need resolution. Have a look at the Consultation Hub on our website to see what we’re consulting on and drop a line to the relevant ATO contact if you want to be involved.
I want to thank the CPA for its ongoing involvement in our consultation and I value our productive working relationship.
I have shared with you our thinking about the ATO’s reinvention program and what we are doing to transform the tax and super experience in Australia. This is not a fad but a long journey of change.
I’d be interested in your feedback so far.
I look forward to sharing this journey with CPA as we improve the tax and superannuation experience here in Australia.
Thank you and I’m happy to take some questions.
Commissioner Chris Jordan's keynote address to the 2014 CPA Congress in Melbourne on 15 October 2014.