Watchdog to probe ATO after small business tax debt surge
A $7bn blowout in unpaid taxes has prompted the watchdog overseeing the ATO to launch an investigation as complaints mount that small businesses are being unfairly targeted by stringent debt recovery tactics.
With total undisputed tax debt growing from $19.2bn to $26.2bn over the past four years, the Inspector-General of Taxation and Taxation Ombudsman Karen Payne has told The Australian that she wants succinct and targeted investigations that report quickly.
The IGTO’s annual report, tabled in parliament last week, revealed that complaints against the Australian Taxation Office increased 13 per cent last year, largely following media reports that detailed serious allegations that the ATO unfairly targeted small business. The reports focused on the ATO’s allegedly heavy-handed use of garnishee notices to forcibly recover revenue from businesses and individuals.
Tax audits and other ATO compliance activities added $16bn to federal government revenues last year, including $1bn in voluntary disclosures by taxpayers.
“What I would like to do as a first investigation would be to just understand what is contributing to this increasing level of undisputed tax debt,’’ Ms Payne told The Australian in her first interview since taking the role in May.
“Where is it accumulating in the system? Is it in big business, small business, or other specific sectors within the economy?
“Is the accumulated tax debt associated with any changes in the economy or in the system?
“We want to try and understand if there are particular taxes it is associated with — GST, income tax, CGT or BAS-type taxes. And then to use that scoping study to do a better, and more targeted, deep dive.”
The Reserve Bank has previously expressed concerns that small businesses continue to account for the majority of the debt owed to the ATO.
One-quarter of complaints to the IGTO last year were in relation to the ATO’s debt collection actions, including payment arrangements, quantifying debts, garnishing amounts from taxpayers’ accounts, offsetting credits against debts and issuing demand letters.
“If I look at our complaints statistics since we took on the Tax Ombudsman role (in 2015, from the Commonwealth Ombudsman), the No 1 issue in every year is tax debt,’’ Ms Payne said.
“It is the No 1 complaint issue. It is also an issue of broader concern to the economy
“If we are doing an investigation, we need to be reporting back in a way that people can use it in a constructive way to improve the system.”
The last review of the ATO’s debt collection system took place in 2015 following a number of concerns raised by individuals, small businesses, tax and insolvency practitioners.
At a Senate estimates hearing last week, Tax Commissioner Chris Jordan labelled as “sensational” media reporting about the way ATO whistleblowers Richard Boyle and Ron Shamir had been treated after making allegations of misconduct about the tax office.
The ATO is also a focus of the public “Right to Know” campaign for media freedom launched last week, but Mr Jordan claimed that the campaign had “reignited misleading public commentary about the tax office’s attitude towards whistleblowers”.
Ms Payne told a Senate committee a fortnight ago that her office was powerless to protect whistleblowers and called for legislative or policy changes to better safeguard those who disclosed information.
She was appearing before a committee reviewing how the IGTO investigates the ATO and what protections are offered to whistleblowers who bring information to the IGTO.
She also told the committee that the IGTO, which has only 30 staff, was battling “resourcing constraints” and was stretched dealing with small business disputes.
She told The Australian her case for more funding would be strengthened by giving the IGTO greater visibility.
“Yes I am concerned about the resourcing … But my personal view is if you are there to provide a service to the community, you need the community to know,’’ she said.
“If you don’t have the resources, then you can make a business case that you need more funding.’’
One-quarter of the complaints received by the IGTO last year were from business owners, while most of the remainder were from individual taxpayers, almost 90 per cent of whom had no form of legal representation or assistance.
“The people who are raising complaints with us are individuals and they are largely unrepresented,’’ Ms Payne said.
“I suspect we are dealing with a small fraction of the potential people in the system.
“If they knew about us and how we could help, it could bring a flood of issues through our door.”
Ms Payne said her priority was to make her group more visible and available as a resource to aggrieved taxpayers.
“No one knows who we are, no one knows what we do. It is not just taxpayers, it is also tax practitioners,’’ she said.
“That is my No 1 priority for the next year and beyond — making sure people understand we are here and what we can do and where we can help.
“It is the most important thing we can focus on. I have a very direct style of communication. There isn’t ever room for doubt about what I am trying to say.
“I would like for our team to be developing their skills in dealing with the community and for our reporting to be more direct and succinct.”
The IGTO conducted 1636 investigations during 2019, 91 per cent of which were completed during the year, but Ms Payne said the investigation process could be improved.
An internal survey conducted over the past year by the IGTO found 44 per cent of respondents reported “overall dissatisfaction” with the outcome of their complaint; 45 per cent reported overall satisfaction.
“I want to keep them (investigations) more narrow and more targeted so they can be more timely … so they don’t take 12-18 months to complete, by which time everyone has moved on,’’ Ms Payne said.