There are some tax issues that transcend the world of tax – and become societal problems.
Perhaps the biggest of these is represented by what Michael Andrew, former KPMG global chairman and now chairman of the Board of Tax, described as Australia’s ‘national sport’ – taking cash payments and not declaring them to the ATO.
Michael is currently heading up the government’s black economy taskforce, and KPMG has considered the issues at length in our submission to that group.
Minimising the size of the black economy is critical to the tax and criminal systems – we believe this area is the last of the major “tax bases” which can derive significant revenue for the public purse.
But this issue goes much wider than just protecting revenue – addressing tax evasion is also important to the general ethical fabric of our society and how we trust and relate to each other. The frequent justification that “everyone is doing it” must be challenged.
We believe nothing less than a national campaign to move Australia away from the black economy is needed – involving support from business, trade union, social services, civil society leaders and both sides of politics.
This multi-faceted campaign must be inclusive, so must not be targeted at particular groups – all measures should be viewed through a prism of gender, indigeneity, socio-economic grouping, and educational and ethnic background to ensure they are appropriate.
In our submission we make a series of wide-ranging recommendations.
- A small business non-cash tax offset – a non-refundable amount for businesses that adopt non-cash business models. This could ultimately be extended to individuals.
- The law should require non-cash payment of wages.
- An aggressive push on the ban of sales suppression technology.
- Consolidation of all tax revenue collection into the ATO, which would act as a ‘back-end’ depository. The front-end would be a new one-stop business shop (OsBus) providing a mechanism for obtaining all state and federal licences.
- Tax literacy training (free and online) for all trades and small business people.
- An amnesty for employers and employees to report income and cash wages over the past 2 years and not have penalties applied.
- A $10,000 cash transaction limit.
- ABN reform – creation of a new Australian Business & Investment Licence used for all federal and state taxation and other regulatory services.
- Gradual extension of the Taxable Payment Reporting System (TPRS) to labour hire companies, building sector, IT sector and sharing economy – with the implementation of a Smartphone app data-matching plan.
- Creation of a whistle-blowing hotline, a black economy ombudsman and a specialist tax tribunal.
- A focus on ethical business practices, through measures such as a responsible procurement code, together with a tougher anti-bribery and corruption regime – including a national equivalent of the various State-based anti-corruption commissions.
The key is to strike the right balance, by simplifying systems by placing a greater reliance on smart technology – but not to impose a greater administrative burden on small business. Most measures, however, will involve a cost-benefit analysis.
Moving away from the cash economy would benefit society in many ways. There is significant evidence linking the black economy with a lack of consumer or vendor protection, for example in the rental market, where tenants and landlords could be denied certain rights of a tenancy was not registered and income declared for tax purposes.
A seller of services for cash could be denied civil action in the absence of declared transactions. Ending these scenarios has the potential to change behaviour dramatically and for the better.
A strong visible enforcement presence would be needed once the amnesty period is over, with prosecutions well-publicised. Professional associations and trade unions will have a key educational role to play in educating their members and could consider establishing advisory boards to assist in stamping out the black economy.
Tax advisers would be made aware that turning a blind eye is both unethical and subject to disciplinary action.
Many black economy activities could be deterred and discouraged through tougher measures aimed at bribery and corruption, as well as broadening the reach of the current Anti-Money Laundering regime.
Smarter use of data and data-matching should also allow more effective and targeted detection measures. Enhancements to whistle-blowing legislation and usage and greater protection of corporate whistle-blowers is also crucial.
This is a long term project with multiple dimensions and phases – it is not just a ‘whole of government’ issue – but a ‘whole of society’ campaign. Will you join us?