Released last week, the Case for Change is a 287-page report that points to the most burdensome areas of Australia’s tax system, and how each might benefit from comprehensive reform.
Among them is the true cost of complying with tax law, which in 2012 was estimated by Ken Henry to be some $40 billion a year — though it’s now likely to be more than $50 billion, according to the report. A large portion of that cost, according to Andrew Mills, director of tax policy and advocacy at The Tax Institute, could be reduced.
“Our tax law is now more than 10,000 pages long, covers 125 taxes, with dozens of anti-avoidance measures and countless complex concessions,” said Mr Mills. “Ten of those taxes raise 90 per cent of Australia’s tax revenue.
“We cannot keep tacking on more measures and more inefficient and ineffective taxes and expect to have a working economy in a decades’ time — let alone a thriving one.
“A huge part of that cost is avoidable if we address the systemic issues of our system instead of continuing to tweak around the edges.
“You can put as many Band-Aids as you like on a broken limb, but it doesn’t change the fact that it’s broken. We need significant intervention, and we need expertise to undertake the right surgery.”
The report suggests that taxpayer distrust has begun to emerge in many ways. In the corporate sector, large compliance costs are reported to consume a disproportionate amount of time and resources, despite ATO data indicating high volumes of voluntary tax compliance by large firms.
Another source of distrust suggested by the report is needless complexity, and the treatment of taxpayers by auditors, who are suggested to treat businesses as “guilty until proven innocent”, particularly small business owners.
According to the report, excessive requirements for detailed information, requests for written responses to questions answered in interviews, and increased levels of reporting impose heavy burdens on taxpayers.
“Taxpayers are often asked for excessively detailed information during tax audits,” Mr Mills said. “I have heard of cases where taxpayers were asked to provide evidence of something that didn’t happen.
“Particularly for small business owners, there seems to be a disproportionate expectation for them to have processes in place above and beyond what could reasonably be expected.
“That suggests that auditors are assuming the business is hiding something — guilty until proven innocent.”
Distrust in Australia’s tax system emerges in many ways, the source of which is needless complexity, according to the report, that emanates from a suspicion of large, multinational firms and high-net-worth individuals, who are perceived to avoid paying their fair share of tax because they can pay “smart tax lawyers and accountants”.
“This lack of trust also contributes to the current complexity of our tax law,” Mr Mills said. “We design anti-avoidance measures and weigh policy down with detail designed to avoid ‘unintended consequences’.
“But that level of detail leaves new gaps or areas of uncertainty and puts the law at odds with normal business practice.
“If we succeed in regaining trust between regulators and taxpayers, we can simplify tax law and make it adaptable to changing circumstances and new and emerging ways of doing business.”