Australian Tax Reform Reducing Tax Evasion In Black Economy

by Mary Swire, Tax-News.com, Hong Kong

24 September 2003

A Cash Economy Task Force report released by the Australian Tax Office this week has found that the new tax system is impacting significantly on tax evasion in the black economy, reducing the potential for 'under the counter' cash transactions between businesses.

The Task Force, which consists of academics, small business operators, tax practitioners, and representatives from the building, construction, and retailing industries listed the following indications that the new tax system was having a positive effect on tax evasion in the cash economy:

• More than $135 million has been withheld from businesses that did not quote a valid Australian Business Number (ABN) when supplying goods or services.
• More businesses than expected have registered for an ABN, with tens of thousands of businesses previously outside the tax system now drawn into the tax net. The Tax Office has already raised about $50 million in backdated taxes.
• Revenue outcomes are consistent with the expected compliance dividend from the new tax system to June 2003 of $2.6 billion.
• A survey of small business and public practice Certified Practising Accountants found 81% of CPAs considered their clients' bookkeeping procedures had improved under the new tax system and 68 per cent saw improvement in invoicing procedures.

Welcoming the report, Tax Commissioner Michael Carmody said that the ATO will implement all 38 recommendations put forward by the Task Force, although he added that a small number will require further research.

"Businesses that blatantly disregard help and assistance from the Tax Office and fail to improve their records will face on-the-spot penalties ranging from $110 to $2,200," warned Mr Carmody. "While businesses will receive a warning for their first offence, continued disregard for record keeping will result in a penalty."

"Around 70,000 businesses operating in high-risk cash economy industries such as building and construction, restaurants, cafes and taxis can expect to be contacted by one of our investigators in the field," Carmody added.

Recommendations made by the Task Force include:

• Focusing Tax Office compliance activities on transactions between consumers and businesses;
• Encouraging the community to play a greater role in ensuring the integrity of the tax system;
• Implementing new strategies to encourage self-regulation within industries;
• Working with other agencies to help educate new businesses about their taxation obligations;
• Making taxation payments easier;
• Expanding the use of the Australian Business Register;
• Trialling new data matching initiatives, such as matching local council information on building approvals and with Tax Office data and registration lists to identify people not registered; and
• Expanded reporting requirements for businesses with poor compliance histories.

According to the ATO, this year, 660 officers (up from 600 last year) will be focussing specifically on cash economy field activities. In addition, another 2,400 field officers will include reviews of cash economy issues in their work, and a significant number of other officers will be undertaking 'help and assistance' initiatives.

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