The Tax Commissioner Tackles Transparency, Avoidance and Tax AppealPublished: June 26, 2012 in Knowledge@Australian School of Business
Transparency is vitally important for Australia's tax system, according to tax commissioner Michael D'Ascenzo, the keynote speaker at the 10th Atax International Tax Administration Conference at the Australian School of Business. Taxation is all about building trust and community confidence – but transparency must go both ways. From the ATO's side, it's about the helping ordinary taxpayers to understand their rights and obligations, whereas for aggressive tax planners it means the need to legitimately apply the law. In a wide-ranging interview with Julian Lorkin of Knowledge@Australian School of Business, D'Ascenzo considers the good news about Australia's personal income tax system, why he's pushing for innovation in tax administration and how the widely criticised Project Wickenby is keeping would-be tax evaders out of secrecy jurisdictions.
An edited transcript of the interview follows.
Knowledge@Australian School of Business: The taxman has indeed cometh, but why have you, as Australia's Commissioner for Taxation, come along to the Atax conference?
Michael D'Ascenzo: I've been a supporter of the Atax conferences since they began. They started off initially as an ATO initiative, with Atax associated with trying to understand compliance costs for taxpayers. I chaired the Atax advisory board for about six years, so I'm a supporter of Atax and the research and study of tax and how we can improve that for the benefit of the country.
Knowledge@Australian School of Business: In your keynote address, you were talking a lot about the significance of transparency for the average taxpayer, why do you see it as so important?
Michael D'Ascenzo: I think tax is about building trust and community confidence. We can play traditional games of hide and seek after the event. Sometimes taxpayers who just don't understand their rights and obligations get it wrong. For ordinary taxpayers, we're there to try to help them understand what their rights and obligations are, and it's important they get that information so they don't make a mistake. It's very much a prevention rather than cure approach. We really want to prevent people from making mistakes, getting into trouble, or doing things that just are wrong so anything that we can do upfront and with a degree of transparency, the better.
I also think you can't hide your cards. If you want to build trust and confidence in the community, then being an open and accountable administration helps to build that.
Knowledge@Australian School of Business: Yet compliance is a costly process for many people who have to fill in a tax return every year. Would you like to see Australia scrap the annual tax return and adopt a more pay-tax-as-you-earn system as many other countries have?
Michael D'Ascenzo: We've got pay-as-you-earn for normal wage and salary earners in Australia. It's a reconciliation at the end of the day, which happens in any other country as well. One of the beauties in terms of the Australian system is that about 80% of returns are filed for a refund and our research actually says that people don't mind provided that process of filing the return is not too hard. What we've been trying to do is to have pre-filling. Our e-tax application makes things as easy as possible for tax agents, BAS agents, so that they can fill in their returns quickly, easily, without too much stress and then the reconciliation is done in a proper way after that.
What happens in some other countries where they have a pay-as-you-go system is that there is a hidden cost and the cost is often on the business or the employer who has to do a lot of this reconciliation work. It's actually questionable whether or not that's a fair system for the employer, whereas in the Australian system, yes, the taxpayer has to file a return, but our role is to try to make it as simple as we can for them.
Knowledge@Australian School of Business: Only two and a half million individuals actually go through the pre-filled e-tax process of filing a tax return at the moment. If the process is so easy and transparent, why aren't more people doing it?
Michael D'Ascenzo: We've had a high incidence of taxpayers going to tax agents; and now something like nine million returns were pre-filled by the ATO through tax agents and then another two and a half million were pre-filled through our e-tax facility. So there's 11 or 12 million out of about a 13 million population of taxpayers, so there's a very high level of pre-filled information being used. People go to tax agents for a lot of reasons. One is that in the Australian community you have people with a range of other requirements that make it more difficult for them.
They might own shares, they might have Capital Gains Tax issues, they may have property development or property investments that make it more complicated. Perhaps they're running quasi sort of business activities. For individual wage and salary earners, their option is to use e-tax, or, if they get a good, cheap service from a tax agent, they do that. It saves them having to focus on something for a weekend once a year and they can do it very quickly.
Knowledge@Australian School of Business: When pre-filling came in it was quite controversial. People felt it was really invasive having the tax office knowing exactly what was happening with your bank account, has that died down?
Michael D'Ascenzo: It was amazing. I was giving a talk just before Christmas in I think 2007 when it was introduced and a tax agent was haranguing me and made the whole period most uncomfortable for me. I said, "Look, it's optional, it's there to help and if it helps you, well that's good", and there was all this sort of issue, "Oh, but big brother!" and all sorts of stuff.
The reality is that anyone who is trying to do their work in an efficient sort of way will make use of it because, as tax agents often found, the taxpayer would go there, they'd forget matters, they'd have to be prompted. It would take more than one meeting and costs would go up both for the taxpayer and for them. Or if there's a mistake and something's excluded and they're picked up on interest and dividend checks, the tax agent found that all this was an unnecessary effort.
So now with some nine million returns or thereabouts being filled by tax agents, before the client comes in the agent often has their returns pre-filled and they say to the client: "Does this cover your position?". And if it does, it's so much simpler than it was in the past.
Knowledge@Australian School of Business: And yet if people don't actually go for this pre-filling process – if they do it manually – do you assume then that they're potentially higher risk or they're not being quite so transparent because they're not bringing on all the data, and therefore they may be trying to hide something?
Michael D'Ascenzo: Something like a bit over half a million people lodge paper returns that don't have a pre-filling facility, so there's some of that nature. Basically anyone using electronic means has gone to pre-filling now.
Knowledge@Australian School of Business: Let's move on then to the process of tax collection. Have you actually got enough resources to collect all the taxes due, after all I've seen some figures saying that there's an extra 10% of tax that could be collected if you had the manpower to go out and get it?
Michael D'Ascenzo: As a commissioner my role is to be as efficient and effective in the usage of the resources that I have. That's why I'm really keen to push new thinking, innovative ways of approaching tax administration and super administration, and to make sure that those new ways of doing it achieve the right sort of effectiveness and outcomes rather than just doing the same thing as we've done in the past. If there's more work to be done, then I should be looking at better ways of trying to achieve that, as well as hoping for more funding over time.
Knowledge@Australian School of Business: But if we're talking about efficiency, I have to ask you about Project Wickenby, the cross-agency taskforce that's uncovering tax evasion and avoidance through tax havens. In terms of the actual revenue it's generating, compared with the amount of effort that's going into collecting that revenue, is it worthwhile?
Michael D'Ascenzo: It's been a great success. In terms of the return on investment, we've beaten that by a long way. The intent always at Wickenby was that deterrent effect – trying to make sure that people in Australia didn't try to avoid or evade tax using tax secrecy jurisdictions. What we're seeing now with some of the data that we have from AUSTRAC, is that we've got significant reductions of funds flowing from Australia to some of these typical tax secrecy jurisdictions, and we're seeing some repatriation of funds back into Australia that way.
The anecdotal information is that advisers and others no longer hear people saying: "Can you put me into this offshore scheme?" And they are not prepared to countenance them, because they know there's a real risk. A third element is the degree of cooperation and the template for the whole of the government approaches to fighting, whether it be organised crime or abuses of the tax or super systems.
Knowledge@Australian School of Business: So does aggressive, but perfectly legal, tax planning still annoy you as people try to find new and inventive ways of avoiding it?
Michael D'Ascenzo: This comes back to my proposition about transparency. If people legitimately want to apply the law, they can be transparent about it.
Knowledge@Australian School of Business: The Australian Taxation Office can have its judgments scrutinised in a tribunal or even a court. This is quite unusual in the global sphere where for many people the tax office is judge and jury. That must be an extra hassle for you?
Michael D'Ascenzo: No, that's not a hassle. That's a feature of the Australian system and we operate on a rule of law system on the basis that we're not going to be arbitrary; we're not going to be capricious and we're not going to operate on administrative fiat. We actually want taxpayers to have their rights protected and that's why we've got the AAT, the Administrative Appeals Tribunal, and we've got the courts. As well as those, there's a whole range of other mechanisms, the judicial mechanisms; there's the Ombudsman, there's a range of checks and balances. We think that's a good system to drive the right sort of balance between the tax administration and the citizen.