Inquiry into the scrutiny arrangements for the Australian Taxation Office
Inquiry into the scrutiny arrangements for the Australian Taxation Office
The IPA welcomes the opportunity to provide a submission into the inquiry into scrutiny of the Australian Taxation Office.
The IPA is a professional organisation for accountants who are recognised for their practical hands-on skills and a broad understanding of the total business environment. Representing more than 35,000 members and students in Australia and in more than 81 countries, the IPA represents members and students working in industry, commerce, government, academia and private practice. More than 75 per cent of our members work in or with small business and SMEs and are recognised as the trusted advisers to these sectors.
The ATO is a key agency that interacts with all businesses both small and large and individual taxpayers. Given this important role it is understandable that there is more scrutiny of its functions when compared to other Government agencies. A high level of scrutiny is appropriate to prevent lapses in performance which can have wide spread impacts on the community. There have been instances over the years of the ATO being dismissive of feedback, particularly where it conflicts with a strongly entrenched position. This is less likely to be the case today given the significant cultural changes in the ATO of late, but given the sheer size of the organisation, there still remains pockets that are slow in adapting. External scrutiny is therefore required to provide independent assurance that the ATO services are performing as expected.
Australia’s self-assessment tax system relies on high levels of voluntary compliance. High levels of voluntary compliance in turn requires taxpayers having trust and confidence in the fairness and efficiency of the tax system. Taxpayers have expectations of what they expect when interacting with the Australian Taxation Office (ATO). These expectations are formalised in the Taxpayers’ Charter which sets out taxpayers’ rights and obligations as well as actions they may take if they are not satisfied. The ATO has considerable power and resources and it is therefore important that there are checks and balances for small and individual taxpayers to address this imbalance of authority in the ATO’s favour. It is also important to balance taxpayer rights against the ATO’s ability to discharge its administrative duties efficiently and effectively. The overriding purpose behind the Taxpayers’ Charter is to foster a relationship of mutual trust, respect and responsibility between taxpayers and the ATO. Its objective needs to be framed in a manner of reducing the cost of compliance, increasing the quality and efficacy of willing compliance, and ensuring that all taxpayers are treated equally and without bias or preference. External scrutiny to ensure the principles governing the charter are adhered to is essential to ensure taxpayers have trust and confidence in the fairness and efficiency of the tax system.
Over the past several decades, the responsibilities placed on taxpayers have increased continuously through ever more complex tax systems, anti-avoidance rules of even greater scope, increased disclosures, and an environment of tax legislation where constant change seems to be the norm. More is expected of taxpayers today than ever before. IPA is a member of Asia-Oceania Tax Consultants Association (AOTCA). The AOTCA body has been working in collaboration with two other professional bodies of tax advisers (CFE and STEP) in developing a Model Taxpayer Charter. The IPA supports the ten key rights and responsibilities of taxpayers and tax administrators embodied in the Model Taxpayer Charter which is attached to this submission. The Inspector-General of Taxation is currently conducting a review into the Taxpayers’ Charter. In its submission to this review, IPA has stated that whilst taxpayer responsibilities have increased substantially, recognition of taxpayer rights have not kept pace and may have fallen behind.
The size and sophistication of ATO operations has grown in response to policy changes that have expanded the revenue base. The ATO has in excess of 20,000 staff and is the second largest government agency. The Commissioner of Taxation has a statutory independence to administer Federal taxes. This independence means the Commissioner makes the decisions about how to implement and apply the tax laws. The role of the Commissioner is not overseen by a board of directors, nor is there any meaningful day to day ministerial direction or control compared to other government agencies. Treasury ministers are accountable to the Parliament for the performance of the ATO but they have no power to direct the Commissioner’s administration of the tax laws and limited involvement in Governance of the ATO. The independence of the ATO together with its very significant powers and responsibilities effectively requires high levels of public accountability and transparency. Governance arrangements need to strike a balance between maintaining the independence of the Commissioner and ensuring a fair and efficient tax system.
The Commissioner is required by law to report annually to Parliament on the operation of the ATO, as well as appear before parliamentary committees to explain the ATO’s administration. The complexity of the tax system makes it difficult for parliamentarians to examine the operations of the ATO effectively. It is for this reason that these parliamentary examinations of the ATO cannot be relied upon to fulfil an active role in the cycle of public accountability of the ATO, hence the need for a number of agencies to complement these parliamentary accountabilities.
One of the main agencies for scrutinising the Commissioner’s work is the Inspector-General of Taxation, an independent statutory agency. The role of the Inspector–General of Taxation is to examine systemic tax administration issues that affect businesses or individuals. The office of the Inspector-General of Taxation (IGT) was established in 2003 to strengthen the advice given to the Government about tax administration. It reports its recommendations for improving tax administration to the Government. Many of the reviews undertaken have resulted in substantial improvements in tax administration. The ATO has implemented the majority of the recommendations contained in these reviews. IGT plays an important role in the independent oversight of the ATO. No other agency performs this scrutiny through the lens of a taxpayer and against taxpayer charter.
The only other agency which conducts detail reviews of ATO programs, policies, projects and activities is the office of the Australian National Audit Office (ANAO) when it undertakes performance audits. These two agencies communicate their proposed activities amongst themselves to avoid any overlap in reviews.
The office of the Inspector General has recently absorbed the tax investigation and complaint handling functions of the Commonwealth Ombudsman, improving its ability to identify systemic issues arising from individual taxpayer complaints. This provides taxpayers with a single specialised scrutiny agency for the handling of both individual tax complaints and systemic tax reviews. This has been a recent improvement in the oversight framework of the ATO. The IGT future review work plans could cover systemic issues highlighted by trends in complaints enabling the office to respond more quickly to emerging issues.
In summary the role of scrutiny is to provide independent assurance that the ATO services are well managed and adhere to the Taxpayers Charter. The current level of scrutiny provides the mechanisms in which taxpayers gain trust and confidence in the fairness of the tax system which in turn feeds into high levels of voluntary compliance. Without the current level of scrutiny, it would be difficult for Parliament to fulfil its role of ensuring accountability of the ATO to the Australian public. We encourage the ATO to continue the professional way in which it currently deals with its scrutineers.
The IPA welcomes the opportunity to discuss further any of the matters we have put forward in our submission. Please address all further enquires to myself
(firstname.lastname@example.org or 0419 369 038).
Tony Greco FIPA
General Manager Technical Policy
Institute of Public Accountants