The report of the House of Representatives Standing Committee on Tax and Revenue into Taxpayer Engagement with the Tax System has been tabled. This is a significant report, also covering issues that have been canvassed in previous tax reform reports such as the Australia's Future Tax System Review and the Henry Review.
In its inquiry, the Committee examined the ATO's points of engagement with taxpayers and other stakeholders, and reviewed the ATO's performance against advances made by revenue agencies in comparable nations. The inquiry asked what taxpayers should now expect from a modern tax service which is largely or partly automated.
During the inquiry, the Committee received extensive evidence from the ATO about its "reinvention" as a modern automated tax administration system. However, the inquiry also raised alarms that the Committee said it was compelled to explore. In particular, the Committee was concerned that complexity in Australia's tax system is impeding the ATO's transformation into a fully automated and intuitive service. Australia's complex system for claiming workplace-related deductions, for example, was highlighted during the inquiry as being out of step with approaches in most other advanced nations, which had almost universally standardised their approach. The Committee concluded that, under Australia's self-assessment model, more should be done to make tax obligations easier for taxpayers to understand and simpler to comply with.
In its 242-page report, the Committee made 13 recommendations, including:
- that a review of Australia's tax system should be undertaken before 2022, with the purpose of making recommendations on how to simplify the present tax system, in order to both reduce the quantum of tax law and improve comprehension and compliance by people without expertise in taxation law;
- more immediate tax reform to close up tax loopholes, and to meet new challenges evolving with the increase in freelance and contracting work – in particular, the Committee called for introduction of a standard workplace expenses deduction scheme (as proposed by the Australia's Future Tax System Review), with individuals allowed to claim above the set amount by providing full substantiation through a tax return process;
- that the ATO should continue to expand availability of technical initiatives such as prefilling, simplified electronic lodgment systems for business and individuals, and online assessment tools to facilitate Australia's transition to a "push return" tax system – the Committee supports these developments, but wishes to uphold individuals' choices to manage their own tax affairs, using ATO or commercial products, and to seek professional advice from tax professionals enabled by efficient online lodgment services;
- based on the New Zealand system, that Treasury should consider an Australian Business Number (ABN) withholding tax system at source for all industries, with the potential for industry-specific rates;
- that the ATO should adopt a roadmap for the abolition of paper-based returns, including testing and trialling with user groups, although for the foreseeable future the Committee recommends that the ATO maintains the paper-based return service on request;
- that the ATO should review the functionality of the contactor assessment tool for accuracy and utility to taxpayers by reference to the functionality of the tool deployed in the United Kingdom, and report to the Committee on its progress;
- that the ATO should continue to deploy behavioural insights approaches to increase taxpayer engagement;
- that the ATO should make greater use of behavioural insights techniques – such as randomised controlled trials – before full implementation of new initiatives, to determine if such changes are indeed better than current practices, and which changes are the most effective;
- that the ATO should conduct a comprehensive review of its high-level mission statements to devise a single, cohesive and easily understood framework – "a regulatory philosophy" – that clearly and simply outlines the rights and obligations of both the ATO and taxpayers in the tax engagement process; and
- that the ATO should engage with all service providers according to the principle of competitive neutrality, allowing taxpayers the ultimate choice of which channel of access or service to use, and which channel is in their own best interests.
Among other things, the report also noted the following:
- While the trend towards electronic payments and "tap-and-go" contactless cards in Australia is strong, some jurisdictions overseas are more advanced in implementing financial technology developments that support the shift away from cash. For example, Sweden has mandated for implementation of certified cash registers to provide real-time information to the Swedish Taxation Authority (STA) on sales transactions.
- Australia has one of the highest levels of reliance on tax practitioners of any OECD country. At hearings, the ATO advised that Australia's reliance on agents is second only to Italy's – in Australia, 74% of all tax entities (individuals and businesses) employ a tax professional to help them comply with their obligations.
- Mr Graeme Davis, Treasury's Acting Division Head, Tax Framework Division, conjectured that tax complexity may be one cause for Australia's very high reliance on tax agents compared with other nations. However, he emphasised that "there doesn't seem to be a direct correlation" between tax complexity and agent usage, citing the lower tax agent usage in the United States, which is not known for having a simple tax system.
- The Australian tax system supports the use of taxation intermediaries (tax practitioners), as it provides taxpayers with a deduction for the cost of managing tax affairs (irrespective of complexity). The Committee heard evidence that this was inefficient, and that the calibration of the tax system towards overpayment of taxes with refunds provided for workplace deductions, for example, is fuelling a costly "refund churn" while supporting late lodgment and late payment of tax obligations.